2023-03-21 08:59:17 ET
Summary
- Saia, Inc. maintained stable revenues and margins.
- Its impeccable financial positioning is still one of its cornerstones.
- Its growth prospects are decent despite the moderating market demand.
- The stock price remains in an uptrend but may be too high.
The freight, shipping, and logistics industry operates in a highly cyclical market environment. It is more volatile today amidst the rising prices and softening market demand. Even so, Saia, Inc. (NASDAQ: SAIA) remains a secure stock with its solid performance. Revenues and margins were stable despite the quarterly contraction in 2022. Also, it outperformed most of its peers, showing its efficiency amidst macroeconomic headwinds.
Moreover, SAIA may sustain its current capacity and withstand more market blows. It has an impressive financial positioning, given its adequate cash reserves and stable borrowings. It is a vital aspect for capital-intensive companies, especially in a high-interest environment. Meanwhile, the stock price remains in an uptrend but appears to exceed the intrinsic value of the company. Also, investors must be cautious since it is near the maximum level.
Company Performance
The shipping and logistics industry sees softening freight demand amidst elevated inflation and interest rates. Although inflation has relaxed since 3Q 2022, the purchasing power has not adjusted yet. It faces demand and cost pressures that may challenge operational stability. Fortunately, Saia, Inc. shows it can still perform well amidst market disruptions.
In 2022, its operating revenue amounted to $2.79 billion , a 22% year-over-year growth. It was also 55% higher than pre-pandemic levels. Thanks to its expansion through 11 terminal openings and 30 poverty developments. It allowed the company to streamline its processes and cater to more orders. Indeed, its capitalization through prudent expansion remained vital in its strategy to deepen customer ties and expand its domestic market presence. Another primary driving force is its strategic pricing to offset the impact of moderating demand in the second half of 2022. Increased fuel surcharges and improved business mix also worked in favor of the company.
However, we must account for the contracting revenue quarterly. From $740 million in 2Q 2022, revenues dropped to $660 million in 4Q 2022. The softening of freight demand was already evident in 3Q 2022 , but it intensified in 4Q. Aside from the rising prices, we could attribute it to the clearing of supply chain bottlenecks. Thankfully, its pricing strategy and fuel surcharges offset the slowing freight volumes. The operating revenue was 6% higher than the comparative quarter in 2021. If we compare it to its peers, it remains smaller than its close LTL peers, such as Yellow ( YELL ), Knight-Swift ( KNX ), and Old Dominion ( ODFL ). But revenue growth is better than most of them.
Meanwhile, the operating margin remained stable despite the contraction in recent quarters. Its whole-year value of 17% was still higher than in 2021 with 14%. In 4Q 2022, it was only 14%, the lowest in the last five quarters. Despite this, it was still above 10%. Indeed, SAIA stayed efficient amidst lower revenues and higher cost pressures. We can see this in the operating cost dropping from $599 million to $563 million in the second half. The company showed efficiency and enhanced adaptability as inflation peaked and relaxed in a very short period. Its pricing strategy also helped stabilize its viability. The thing is, the company generated returns, which it could use to sustain the expansion and increase cash levels.
This year, SAIA may have to endure near-term headwinds as demand softening persists. In the most recent press release of the company, LTL shipment volumes in the first two months were lower than in 2021. Projections in the first half are still bleak, given the market normalization. But in the second half or maybe in 2024, the situation may improve. We will discuss this part in the next section.
How Saia, Inc. May Stay Solid This Year
Market headwinds stay intense as macroeconomic volatility persists. The moderating freight demand also leads to a bleak near-term outlook. Despite this, I expect Saia to withstand these blows due to several reasons. First, inflation continues to decrease, landing at 6% , 34% lower than the 2022 peak. It may take some time for consumers and businesses to adjust. But if the downtrend continues, demand may improve. To be more specific, gasoline prices are more manageable today. At $3.501 per gallon , prices are already 32% lower than the 2022 peak.
What makes Saia, Inc. secure is its solid financial positioning. Its balance sheet demonstrates its high capacity to sustain its current capacity and even expand. Its cash stays high at $187 million. Meanwhile, borrowings amount to $155 million. Cash reserves are more than enough to cover liabilities, a vital attribute for a capital-intensive company like Saia. It fits in a high-interest environment, making it liquid. We can confirm it in the cash flow from operations, which can cover CapEx. Hence, it has adequate means to cover its expansion with five center openings in the first half. Also, Saia can ensure stable capital returns.
Stock Price
The stock price of Saia, Inc. had a series of crests and troughs in the past year. But the uptrend became more evident after its dip in 4Q 2022. At $270.54, it is still 4% lower than last year's value. It opens an entry point for interested investors. The PB Ratio can show with its current BVPS of 59.68 and PB Ratio of 4.52. If we multiply the current BVPS by the average PB Ratio of 4.54, the target price will be $270.98. The EV/EBITDA Model gives a target price of ($7.05 B EV - (-$33 M Net Debt)) / 26,464,000 common shares outstanding = $267.65. To assess the stock price better, we will use the DCF Model.
FCFF $224,000,000
Cash $187,000,000
Borrowings $155,000,000
Perpetual Growth Rate 4.8%
WACC 9.2%
Common Shares Outstanding 26,464,000
Stock Price $267.42
Derived Value $252.44
Bottomline
Saia, Inc. is a durable LTL company despite market volatility. It also has adequate capacity to sustain its operations and expand. However, the stock price may be too high to reflect its fundamentals. I highly suggest investors keep an eye on this company while waiting for a potential stock price dip. The recommendation, for now, is that Saia, Inc. stock is a hold.
For further details see:
Saia: A Solid LTL Company In The Midst Of Market Volatility