ABFS Analysis Wrap-up

To wrap-up the analysis on ABFS:
Pros:

• Mr. Market appears to be undervaluing ABFS; it's trading below book value
• The company has a good financial position
• ABFS is a stable, focused company, with good management
  
• Has a straightforward, well-established business

Cons:

• ABFS is in a hypercompetitive, commoditized industry
• The company is very sensitive to fuel prices

I would like to conclude with one last bit of analysis: intrinsic value. Graham/Dodd use the following formula:

Intrinsic Value = E (2r + 8.5) x 4.4/gamma

Where E = earnings per share; r = expected earnings growth rate; gamma = current yield on AAA corporate bonds
Using the following values: E = 2.51/share; r = 8% (this is conservative; earnings have doubled in the last 4 years, which means it's been increasing by 18%); gamma = 7% (again, another conservative figure)

Based on this, intrinsic value is $38.65/share, which would price ABFS at about 15x 2007 earnings. This is a bit richer than some competitors (YRCW, ODFL), but less than others (FWRD), and represents a valuation that's nearly 100% higher than current levels--a significant margin of safety.