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Tickers in this Article: PACR, HUBG, CHWR, BA, UNP, CSX, GE, SNE, TM, WHR
Companies associated with moving things from point A to point B have been on a tear in recent years. The Dow Jones Transportation Average has doubled over the past 48 months; Boeing (NYSE: BA) can't manufacture jets fast enough to satisfy demand, and railroad and trucking stocks are trading at all-time highs.

So what's wrong with Pacer International (Nasdaq: PACR), a leading provider of logistics and intermodal (movement of freight over two or more modes of transportation) services?

The company should be printing money, considering current industry dynamics and the fact Pacer has long-term contracts with the major railroads, including Union Pacific (NYSE: UNP) and CSX Corp. (NYSE: CSX).

Important customers include major multinationals General Electric (NYSE: GE), Sony (NYSE: SNE), Toyota (NYSE: TM) and Whirlpool (NYSE: WHR).

And yet Pacer continues to disappoint. Revenue growth in 2006 was flat at $1.88 billion, though earnings per share (EPS) increased 34% to $1.80 from 2005's $1.24. But Pacer warned that 2007 EPS would be between $1.50 and $1.60, with revenue remaining flat at around $1.9 billion. (To learn more, see Reading The Balance Sheet.)

Lagging Behind the Competition
The Hub Group (Nasdaq: HUBG), a similar intermodal-logistics provider, reported earnings of $48.7 million, or $1.19 per share, in 2006, compared to $32.9 million, or 80 cents per share, in 2005. Revenue increased 8.8% to $1.61 billion. For 2007, Hub expects to boost EPS to the $1.30-to-$1.40 range on a 6% increase in revenue.

Meanwhile, C.H. Robinson Worldwide (Nasdaq: CHRW), a larger, more diverse competitor, makes Hub's growth seem glacial in comparison. The Minneapolis-based freight services and logistics provider reported a 15.2%-revenue increase to $6.55 billion in 2006, while EPS increased 30.5% to $1.52.

So maybe Hub Group and C.H. Robinson Worldwide just got lucky last year?

Unlikely. In the first quarter of 2007, Hub's reported earnings rose 25% to $11.4 million, or 29 cents per share, from $9.1 million, or 22 cents per share, a year ago. Revenue grew 10% to $393.3 million from last year's $356.8 million. The company said its results were boosted by 16% higher logistics revenue.

Not to be outdone, C.H. Robinson reported a 27% increase in earnings, growing to $73.0 million, or 42 cents per share, from $58.1 million, or 33 cents per share, a year earlier, while revenue increased 8% to $1.62 billion from $1.50 billion.

By the Numbers
And Pacer? It reports first quarter 2007 results on May 3, with the consensus calling for 32 cents per share, down from first quarter 2006's 36 cents per share. Revenue is expected to check in at $476 million, a 1.5% increase over 2005's $469 million.

As you'd expect, C.H. Robinson and Hub Group are trading at their 52-week highs, while Pacer is trading at a 25% discount to its 52-week high.

Value Play or Value Trap?

My value gene would normally kick in at this point, considering Pacer trades at a lower forward price-to-earnings ratio, lower price-to-book and price-to-sales ratios, and a higher dividend yield than either C.H Robinson or Hub. But not this time...

The transportation industry is notoriously cyclical. At this point in the cycle, Pacer and its competitors are exposed to a possible U.S. economic slowdown and to oil price risk to the extent that these costs, which are passed on to customers, will hurt demand.

An even greater concern, though, is management's inability to execute and its explications for not executing. The company has been asked to defend its lowering of 2007 EPS estimates. Consider this insightful nugget from a recent conference call: "The estimate was based on the company's current strategic initiatives and preliminary estimates available at this time that indicate lower-than-expected revenue growth for the first quarter." Some analysts complained about being "confused" during the call.

Still, I wouldn't dismiss Pacer quite yet. After all, I favor value investing, and Pacer resembles a value investment much more than either Hub Group or C.H. Robinson.

However, until management demonstrates improved top-line growth, improved execution and successful cost reductions and efficiency improvements from recently-announced restructuring, Pacer could continue to underperform its transportation-logistics peers.

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