2023-05-08 11:54:56 ET
Summary
- Shares of the trucking company may be set up to fall temporarily.
- Fundamentals though remain bright with investments to date hitting the mark.
- The company's keen valuation and strong profitability point to limited downside risk here.
Intro
If we pull up a technical chart of Schneider National, Inc. ( SNDR ), we can see that the stock topped out in early February of this year and has been printing lower lows ever since. This means we have a potential descending triangle formation in play (bearish pattern) although we will not have confirmation until indeed shares break below support to the downside. If support breaks to the downside, shares could easily return to test their September lows of last year of just north of $20 a share. While this may seem unlikely at this present moment in time (shares are currently trading at $26.68 per share), the good thing is that we should get confirmation of Schneider National's near-term direction pretty soon (over the next few weeks) due to the converging nature of the trendlines depicted below.
What enabled Schneider National successfully test its March lows was the company's recently announced Q1 earnings beat (April 27th) where we saw Non-GAAP earnings of $0.55 per share beat consensus by $0.10. Furthermore, despite the slight drop in Schneider's 2023 adjusted bottom-line guidance (now approximately $2.10 per share), investors saw plenty of scope with respect to continuous improvement in the Dedicated truckload segment, growing partnerships in ' Intermodal ' as well as the commencement of the fresh $150 million share repurchase program expected to get underway in the second quarter of this year.
Moreover, when one boils everything down, Schneider's present valuation actually looks rather keen when compared to the company's profitability. In fact, this dynamic looks even better if indeed the potential bearish pattern were to play itself out over the next few months.
Return On Capital
Given how shareholder equity continues to increase on Schneider's balance sheet and how operating cash flow continues to cover Capex expenses such as technology & equipment investment, the CFO on the latest earnings call reiterated that extra money will still be put to work if accretive M&A opportunities were to come along. As investors, we would favor strategic investments instead of buybacks due to how assets and sales increase as a result.
In fact, generating cash flow is one thing but being able to consistently allocate that capital at high rates of return is the key to long-term investing success. To calculate Schneider's ROC, we divide the company's debt + equity into net profit minus dividends. Therefore, in the recent first quarter, Schneider reported $98 million in net income & $15.7 million in dividend payments. Long-term debt ($135 million) plus total equity ($2,918 billion) came to $3,053 billion at the end of Q1. Therefore, when we annualize Schneider's income & dividend numbers, we get an annualized ROC of 10.8% which is a solid number despite the fact that the average EPS target for the upcoming 3 quarters is expected to fall somewhat which now comes in at approximately $0.50 per share.
Value
Suffice it to say, the possibility of making 10%+ on one's money over the long-term increases significantly when one can pick up shares at a very attractive price. As we see below, all of Schneider's principal valuation multiples are below their corresponding 5-year counterparts. Furthermore, they are all in positive territory and the company's ultra-low debt-to-equity ratio of 7.35% demonstrates that leverage remains firmly under control.
Multiple | Current | 5-Year Average |
Price To Earnings | 10.30 | 15.72 |
Price To Sales | 0.74 | 0.82 |
Price To Book | 1.63 | 1.83 |
Price To Cash/Flow | 5.79 | 6.46 |
Dividend Growth
Although Schneider's dividend yield of 1.35% will not turn many heads in terms of size, the payout has been growing rapidly in recent times. The 5-year growth rate now comes in at 15.58% which is well ahead of the inflation rate which is really key concerning the current environment with respect to protecting the purchasing power of the investor. Investors should also remember the $2 special dividend which was paid out in November of 2020. Therefore, in earnest, the stated dividend yield of 1.35% (which would spike to 1.8% if the $20 handle was to be tested in due course) is much lower than say a 5-year average dividend yield which takes into account that generous $2 per share payment in 2020.
Conclusion
To sum up, value-minded investors would love Schneider National to break below support temporarily and in the process present a prime long-term buying opportunity. Due to Schneider's keen valuation, high ROC, and strong balance sheet, we see expect buyers to step in aggressively on any potential down move. We look forward to continued coverage.
For further details see:
Schneider National: Expecting Buyers To Step In Aggressively