Forward Air - Touch and Go

Forward Air Corporation is a high-service level truckload carrier and contractor to the air cargo industry providing scheduled trucking services to air freight forwarders, fully integrated air cargo carriers and domestic and international airlines. The company also provides short- to medium-haul delivery.

Industry peers include International Cargo Marketing Consultants, New Penn Motor Express, and Old Dominion Freight Line.

Short-Term Value
My short-term (3-6 week hold) target price for the stock is $59.43, with an initial trailing stop at $52.40. Upward price movement will encounter resistance at $55.00 and $55.91 with final resistance at $57.71, while downward price movement will find support at $51.62.

The Tax Act
The Tax Cuts and Jobs Act of 2017 makes broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21%; (2) requiring companies to pay a one-time deemed repatriation transition tax (the “Transition Tax”) on certain earnings of foreign subsidiaries; (3) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (4) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (5) eliminating the corporate alternative minimum tax (“AMT”) and changing how AMT credits can be realized; (6) capital expensing; (7) eliminating the deduction on U.S. manufacturing activities; and (8) creating new limitations on deductible interest expense and executive compensation.

The Securities Exchange Commission staff issued Staff Accounting Bulletin (“SAB”) 118 which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

The Act includes a transition rule to effect this participation exemption regime. As a result of the enacted legislation, taxpayers are required to include in taxable income for the tax year ending December 31, 2017, the pro rata share of deferred income of each specified foreign corporation with respect to which the taxpayer is a U.S. shareholder.

It is important to note that income tax adjustments applied to repatriated earnings and deferred taxes, may distort a companies earnings and consequently its fair value.

In the case of Forward Air Corporation, at December 31, 2017, the company had state net operating loss carryforwards of $18.1 million for certain legal entities that will expire between 2017 and 2030. The use of these state net operating losses is limited to the future taxable income of separate legal entities. Based on expectations of future taxable income, management believes that it is more likely than not that the results of operations for the certain legal entities will not generate sufficient taxable income to realize the net operating loss benefits for these state loss carryforwards. As a result, a valuation allowance has been provided for these specific state loss carryforwards. The valuation allowance on these certain state loss carryforwards was approximately $0.4 million at December 31, 2017.

The revaluation of the company's U.S. deferred tax assets and liabilities to the 21% corporate tax rate reduced net U.S. deferred income tax liability by approximately $15.9 million which is reflected as a reduction in the company's income tax expense for the year ended December 31, 2017. The ultimate impact of the U.S. Tax Act on reported results in 2018 may differ from the estimates provided due to changes in interpretations and assumptions the company has made, guidance that may be issued, and other actions taken as a result of the U.S. Tax Act different from that presently contemplated.

Insider Transactions
In the past 12 months, the company recorded 95 insider trades involving 369,851 shares of stock. Of those 95 insider trades, 43 were Buys involving 156,877 shares of stock, and 52 were Sells involving 212,974 shares of stock, creating an insider buy to sell ratio of 0.7 to 1.

Future Value
My future (5 year hold) target price for the stock is $72, which is an average annual return of 7%. A prior five year hold of the stock (2012-2017) would have returned an average of 13% per year. Please be aware that past and future gains are based on actual and anticipated earnings, actual and anticipated dividends, and actual and anticipated price appreciation. Please also be reminded that any investment has the potential for loss, and past performance is no guarantee of future results.

Fair Warning
Fair warning means that the time for bidding has ended and a sale is about to be concluded. For Forward Air Corporation (Nasdaq: FWRD) - FYE 12/2017 FAIRLY VALUED The stock is currently trading at levels in line with my most recent $55 fair value estimate. Please See Linked PDF Worksheet

Disclosure
I hold no shares of Forward Air Corporation
Posted on 04/22/18