Tuesday, Baird increased the price target for Forward Air (NASDAQ:FWRD) to $32.00 from $24.00, while maintaining a Neutral rating on the stock. The firm anticipates that Forward Air will continue to adhere to its 2024 financial outlook, which projects $310 million to $325 million in consolidated EBITDA. The company's ongoing portfolio review and potential asset disposals are expected to address leverage and liquidity concerns.
Forward Air's share price has partially increased due to significant activist involvement, and there is speculation about a potential sale of the company. Baird notes that the company's new strategy and financial model, particularly with Omni, are still in the initial stages. Trading for Forward Air is predicted to remain volatile in the short term, with a high likelihood of incremental progress through the third quarter.
The company's EBITDA in the second half of 2024 is projected to be between $174 million and $189 million, or approximately $87 million to $95 million quarterly. This forecast is compared to EBITDA of $96 million and $94 million in the third and fourth quarters of 2023, respectively, and a trailing twelve-month EBITDA through the second quarter of 2024 of $325 million.
Forward Air is also on track to achieve additional cost savings related to Omni, with $14.6 million already realized in the second quarter of 2024 and further savings expected in the subsequent quarters.
Management at Forward Air is focused on reaching $75 million in annualized run-rate savings by the end of the first quarter of 2025, which includes approximately $20 million in savings from recent headcount reductions. These savings are in addition to the Omni-related savings.
As transaction expenses decrease, Forward Air anticipates a neutral or positive impact on cash flow during the third or fourth quarter of 2024. The company's ability to maintain and build upon its adjusted EBITDA level is seen as a key factor in boosting confidence in its long-term earnings potential, which is estimated to be around $1.50 per share, depending on successful execution and balance sheet deleveraging.
Despite the positive outlook on savings and cash flow, Forward Air acknowledges challenges in integrating Omni and managing initial customer attrition. The company's path to improvement is expected to be non-linear, with potential macroeconomic deterioration posing a significant risk. Forward Air ended the second quarter of 2024 with a consolidated net leverage of 5.2 times, with net debt of approximately $1.7 billion.
This leverage ratio is down from 5.0 times in the first quarter of 2024 and remains below the required 6.0 times covenant threshold. The company anticipates remaining in compliance with its financial covenants, even as the threshold lowers to 5.5 times at year-end. Additionally, Forward Air is actively seeking to sell non-core assets to support its operational initiatives.
In other recent news, Forward Air Corporation has been the subject of significant attention from investment firm Ancora Holdings Group, LLC, which has called for a strategic review and potential sale of the company due to a decade of perceived underperformance.
Ancora's suggestion for a review has the backing of holders of approximately 22% of Forward Air's shares. In the financial domain, Forward Air reported a 52% rise in Q1 revenue to $542 million, largely attributed to the performance of the Omni segment, but also saw a 51% drop in adjusted EBITDA to $29 million.
Analysts have been closely monitoring these developments. Baird raised the price target for Forward Air shares to $17.00, recognizing the company's efforts to mitigate debt and enhance profitability, despite anticipated operating losses in the upcoming quarters. Meanwhile, Stifel maintained a Hold rating and a $23.00 price target for the company, welcoming the appointment of Jamie Pierson as interim Chief Financial Officer.
Wolfe Research upgraded Forward Air's stock rating from Underperform to Peer Perform, holding steady on its financial forecasts, which project an adjusted EBITDA of $170 million in 2024 and $248 million in 2025. Forward Air is also planning to divest non-core assets in 2024 to aid in debt repayment.
InvestingPro Insights
Recent data from InvestingPro sheds additional light on Forward Air's financial situation and market performance. The company's market capitalization stands at $980.58 million, reflecting its current position in the transportation sector. Despite the challenges outlined in the article, Forward Air has shown a remarkable 85.44% price total return over the past three months, indicating a significant short-term recovery in investor confidence.
However, the company's financial health remains a concern. An InvestingPro Tip highlights that Forward Air operates with a significant debt burden, which aligns with the article's mention of the company's high leverage ratio and efforts to address liquidity concerns. Additionally, the company's P/E ratio of -40.27 for the last twelve months as of Q2 2024 suggests ongoing profitability challenges, consistent with another InvestingPro Tip indicating that analysts do not anticipate the company will be profitable this year.
On a positive note, Forward Air has maintained dividend payments for 19 consecutive years, as per an InvestingPro Tip. This commitment to shareholder returns, with a current dividend yield of 2.71%, may provide some stability for long-term investors despite the company's current financial struggles.
For readers interested in a deeper analysis, InvestingPro offers 5 additional tips for Forward Air, providing a more comprehensive view of the company's prospects and challenges.
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