Echo Global Logistics Makes Inroads Into Highway Brokerage
A narrow moat positions the company well for further market share gains.
Echo Global Logistics (ECHO) is relatively new to third-party logistics, but it has successfully worked its way into the ranks of key players in the highway brokerage niche. We expect Echo to benefit from ongoing market share gains from asset-based truckers and less sophisticated domestic 3PLs thanks to rising demand for top-tier providers typified by broad access to trucking capacity, market know-how, and sophisticated IT infrastructure. In terms of valuation, however, we think the market is currently accounting for the firm's decent growth prospects; the shares are trading more than 20% above our $18 fair value estimate.
By gross revenue, the $150 billion U.S. 3PL market (including domestic freight brokerage, global air and ocean forwarding, and contract logistics) expanded impressively during the past few decades; average annual growth approximated 10% between 1996 and 2013 (including a 16% decline in 2009), according to Armstrong & Associates. This is well ahead of the 3% growth posted in the broader for-hire trucking and rail intermodal markets over that time frame. Coming out of the economic downturn, industry revenue rebounded (up 16% in 2010), but growth over the past three years has been more modest, rising 5%-6% on average. Much of the slowdown derives from anemic airfreight demand since mid-2011, although airfreight conditions had stabilized by the second half of 2013 and have shown modest improvement thus far in 2014.
Matthew Young does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
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