2023-04-14 16:40:51 ET
Summary
- Daseke has had some mixed results as of late, but the company is, on the whole, on a rather solid footing right now.
- Shares are expensive relative to similar firms, but not materially so.
- Add in how cheap shares are on an absolute basis and how management views 2023, and there are reasons to remain bullish.
Although there are signs emerging that suggest that the economy is not on as solid a footing as it was a few months ago, some companies that you would expect would be most negatively affected have done quite well. One great example of this involves Daseke ( DSKE ), a transportation and logistics company that provides open deck freight transportation services to industrial customers throughout North America. Admittedly, some of the firm's financial performance has been a bit mixed as of late. But when you factor in how cheap shares were, and consider management's own guidance for the 2023 fiscal year, the mystery of why the stock has performed so well can be considered solved. Moving forward, there is evidence that the space should continue to do well. And when factoring in how shares are priced right now, I would make the case that the company, while not being as attractive as it was previously, still warrants a 'buy' rating at this time.
A look at recent performance
Given the turmoil that has been seen in the market and the overall uncertainty as to what the future holds, you might think that a transportation and logistics company is not an ideal place to park your capital. But back in December of last year, I could not help but to rate the enterprise a 'buy'. Admittedly, this was a downgrade from the 'strong buy' rating I had assigned the company previously. That downgrade was driven by mixed financial performance, as well as a peculiar financial transaction that had both positive and negative attributes to it. Given how cheap shares were, however, I felt as though the good still outweighed the bad. Since the time of the publication of that article, shares have done remarkably well. The stock is up 24.5% at a time when the S&P 500 has seen an upside of 7.6%.
Financially speaking, the company remains quite robust. When I last wrote about the firm, we only had data covering through the third quarter of the 2022 fiscal year. Now, we have data covering through the rest of the year as well. For that final quarter , revenue came in at $408.2 million. That's 3.5% higher than the $394.3 million the company generated one year earlier. The real driver for the company on this front was the Specialized Solutions segment. Sales here spiked 10.9% year over year, rising from $219 million to $242.9 million as the company's decision to focus on fleet optimization resulted in higher brokerage volumes for the unit. This was driven in large part by strong demand associated with high-security cargo, agricultural products, and the aerospace niche. This growth more than offset the 5.7% decline from the Flatbed Solutions segment. That part of the company was negatively affected by a reduction in miles, combined with a 2% lower rate per mile that the company was able to charge.
Bottom line results for the firm have been somewhat mixed. Despite the rise in revenue, net income declined from $5.9 million in the final quarter of 2021 to only $5 million versus the same time last year. Operating cash flow, on the other hand, inched up from $29 million to $30.3 million, while the adjusted figure for this jumped from $9.9 million to $37.5 million. And the final metric that I focus on when it comes to the bottom line, EBITDA remained flat at $49.6 million. As you can see in the chart above, results for the 2022 fiscal year were, for the most part, better than they were in 2021. It is true that net profits were down, with the same being said of operating cash flow. But revenue, adjusted operating cash flow, and EBITDA all showed improvements compared to the prior year.
Management has been very direct when it comes to guidance for the current fiscal year. Although there is economic uncertainty, management is forecasting revenue that is either flat or slightly higher this year than it was last year. If it is higher, it would be at the low-single-digit rate. Meanwhile, EBITDA for the business is expected to be roughly flat compared to what the company saw last year. More likely than not, this would translate to the other profitability metrics also being more or less flat.
Although investors who prioritize growth could justifiably argue that flat performance year over year is not ideal, it's definitely better than a decline. It also suggests that management is not terribly worried about the future, or else they likely would have guided lower than what is realistic. They aren't the only ones who don't have an awful view of the space. Competitor C.H. Robinson Worldwide ( CHRW ), for instance, acknowledged that flatbed spot rates were near the low of what they have been over the prior few years. Despite this, and ample capacity in some aspects of the transportation and logistics market, they made the claim that the flatbed category offers attractive opportunities, with building materials, energy products, and other similar categories, remaining robust. In fact, they even went so far as to say the flatbed contract market pricing has more or less bottomed out.
Taking the data that we have at our disposal, I was able to easily value the company. On a price-to-earnings basis, the firm is trading at a multiple of 7.6. That's up from the 6.7 reading that we get using data from 2021. The price to adjusted operating cash flow multiple is considerably lower at 2.4. That's slightly below the 2.6 reading that we get using the prior year. A similar trend can be seen when looking at the EV to EBITDA multiple. That stands at 4.2 using data from last year. By comparison, using data from the year prior, we would get a reading of 4.4. As part of my analysis, I decided to compare Daseke to five similar businesses. The results can be seen in the table below. Using the price-to-earnings approach, four of the five firms were cheaper than our target. Daseke was actually the most expensive of the group on an EV to EBITDA basis. The only way in which shares looked fairly competitive from a valuation perspective was when it came to the price to operating cash flow approach. On this front, the company was cheaper than all but two of the five companies that I compared it to.
Company | Price/Earnings | Price/Operating Cash Flow | EV/EBITDA |
Daseke | 7.6 | 2.4 | 4.2 |
P.A.M. Transportation Services ( PTSI ) | 6.5 | 3.5 | 3.9 |
ArcBest ( ARCB ) | 7.9 | 5.0 | 4.1 |
Yellow ( YELL ) | 4.6 | 0.8 | 2.8 |
Ryder System ( R ) | 5.0 | 1.9 | 3.1 |
Covenant Logistics ( CVLG ) | 4.9 | 3.4 | 2.5 |
Takeaway
Relative to similar firms, Daseke does seem to be a bit pricey at this time. Having said that, the stock is still quite cheap on an absolute basis. It would be great to see the industry showing tremendous strength for this current fiscal year. But at least management expects financial results to be more or less flat compared to last year, as opposed to being down like it could be. Given these factors, I do believe that a soft 'buy' rating for the company is appropriate at this time.
For further details see:
Daseke: The Easy Money Has Been Made, But Further Upside Exists