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The transportationindustry is a vital component of the global economy, with a staggeringvaluation of $875.5 billion, according to the American TruckingAssociation (ATA). As the industry continues to experience impressivegrowth rates around 2.8–3.2%, key sector stocks are making strategicmoves to reward their shareholders. Top performers in the sector aredeclaring higher cash quarterly and annual dividends, offering stockbuybacks, and outperforming industry growth rates.
The truckingtransportation industry has evolved significantly with theintroduction of new technologies, such as artificial intelligence,intermodal transportation strategies, logistics protocols, last-miledelivery skills, new fuels, IoT devices for predictive maintenance,and onboard sensors. These developments have made the trucking andtransportation sector, a new and exciting industry.
However, the industryalso faces several challenges, such as increased wages for employeesand drivers, benefits, rents, fuel, and operating costs. Additionally,finding enough qualified drivers, offsetting higher fuel costs, anddealing with less imported freight due to decreased shipments fromAsia in the short term are other challenges the industry is facing.
Moreover, portdelays and other operating expenses increase the need for intermodal
multi-transportation truck/rail/sea/air logistics for greaterefficiency
Forbes Says Technology Will Make Transportation MoreProfitable
Forbes recently published an analysis that highlightedhow new technology strategies in transportation are promotingsustainability while also driving profitability in the industry.However, these rapid changes make it difficult for investors toaccurately value fast-changing transportation stocks. Despite thischallenge, the transportation sector remains a viable investmentoption.
Accordingto SimplyWallSt., analysts are particularly optimistic about thetrucking industry, predicting 34% annual earnings growth over the nextfive years. In contrast, the earnings growth rate for railroads isexpected to be only 3.2% over the same period. Investors looking forthat growth potential may want to keep an eye on the transportationsector, which seems to have a promising future.
Here’s a look at someindustry winners.
Werner Enterprises, Inc. (NASDAQ: WERN) trades at a PEratio (TTM) of 11.41 and a market cap of $2.7 billion. It is one ofthe nation’s largest trucking and logistics companies. Its boardjust declared another quarterly dividend, this time $0.13 per commonshare, as it has every quarter since July 1987. Last year, Werner paiddividends of $32.2 million and repurchased shares worth $110.40million. Both had similar payouts in 2021. It serves clients in theU.S., Canada, and Mexico. Its revenues in 2022 were greater than $3.3billion, and its net income was $241.2 million.
WERN’s servicesinclude truckload brokerage, freight management, intermodal, and finalmile logistics. Its shares have grown 3.1% over the past three months.outperforming the 2.8%–3.2% projected rise of the truckingtransportation industry. However, the company’s expenses grew 15.9%in Q4 2022. Higher expenses included driver wages, benefits (5.9%higher), fuel up (55.1% increase), plus more rent and purchasedtransportation expenses (a 13.7% jump). Analyst Zacks is impressedwith its cash dividend payouts and share buyback program, designed toboost shareholder value and reinvest in its business. Zacks ranks itsstock as a ‘hold’.
Schneider National, Inc. (NYSE: SNDR) trades at a TTM PEratio of 10.18 and a market cap of $4.6 billion. Last year'srevenues were $6.6 billion, up 6.6% from the prior year, and its netincome in 2022 rising 13% to $457.8 million from FY 2021. However, itsprofit margin dropped to 6.9% in 2022 from 7.2% in FY 2021. That wasbecause SNDR's expenses increased.
SimplyWall St. says it forecasts Schneider’sfiscal performance to stay flat over the next three years vs. a 5.1%jump in Transportation Industry sector revenue seen for the sameperiod. SNDR is increasing its dividend in April for a 1.2% annualpayment to its stock price—unfortunately, that dividend is less thanwhat others in this industry sector are paying, according to analystSimplyWallSt. In 2022, SNDR paid $56 million in dividends, well above2021 levels, the company said on its Q4 earnings call. Its newintermodal Western partner is Union Pacific. Trucking activity wasdown in Q4 2022 because import activity from Asia waned, anindustry-wide headwind.
Even with SNDR’s disappointing performance, which missedanalysts’ estimates by just 1.5%, SimplyWallSt. calculates that SNDRstock is still trading close to its estimated fair value. This analystuses a proprietary two-stage free cash flow calculation method todetermine its fair value estimate per share of $25.98. The stockcurrently trades at $29+ per share. That valuation strategy usesfuture cash flows and discounts them for their current value today.
HeartlandExpress (NASDAQ: HTLD) has a PE ratio (TTM) of 9.11. It has amarket cap of $1.25 billion. Its fiscal performance for the full year2022 beat analysts' expectations. Revenue was up 59% from FY 2021to $968 million in FY 2022. Net income increased by 69% to $133.6million. Its profit margin of 14% in FY 2022 stayed in line with FY2021. As a result, it declared a cash dividend of $0.02 per share,payable on April 7, 2023. That means the company has paid out $544.2million in cash dividends, including this most recent dividendpayment.
SimplyWallSt. estimates 13% revenue growth for HTLD on averageover the next three years vs. a 5.1% forecast for the transportationsector in the US over this period. However, Zacks rates this stock a‘hold’ after its slight fiscal miss of analyst expectations for Q42022 performance.
Marten Transport, Ltd. (NASDAQ: MRTN) has a strong PEratio (TTM) of 14.66 and trades at a market cap of $1.64 billion. In2022, MRTN reported revenues of $1.26 billion, 30% higher than theprevious year. Net income rose 29% to $110.4 million in the full year2022. But like other companies in transportation trucking, MRTN showeda slight decrease in profit margin—to 8.7% in 2022—as higherexpenses, from fuel to payroll, cut into the bottom line. This companyis also forecast to outperform the transportation industry over thenext two years with a 5.4% growth in revenue. Perhaps due to itsfiscal performance, MRTN’s shares have risen YTD. Now analysts aregleefully watching its improved return on capital (ROCE) trends.SimplyWallSt. discovers that it has increased by 15% over the lastfive years and that its stock has increased by 72% over the sameperiod. Its ROCE has outperformed the industry sector average.
For investors willing totake more risk for a potentially higher gain, smaller up-and-comingcompanies may provide that action. One stock that is virtually unknownand flying under the radar in this sector is APSI. Let’s take acloser look at what makes APSI a high-potential opportunity.
Last year, Aqua PowerSystems, Inc. (OTC: APSI) purchased 100% of transportationtrucking company Tradition Transport and all of its subsidiaries. Forthe full fiscal year 2022, sales are expected to be in the $125million range, with a net profit of $4.5 million. In 2021, Traditionreported revenue of $87,695,384 and a net profit of $2,986,945. In2020, the company generated $49,992,274 and a net income of$1,738,623. APSI moved from a shell OTC company to a bona fideasset-based transport/trucking firm with seven subsidiaries.
Yet, APSI trades at amarket cap of only $5.7 million.
Tradition Debuts New IntermodalServices
Tradition, through its subsidiary Freedom Freight Solutions,added new intermodal services through its drayage inbound and outboundfreight business at its facility in the Port of Savannah. The seamlessintermodal strategy is designed to make freight movement faster andmore efficient for the customer.
Tradition is adopting new technology for its largebase of some 500 active customers. It serves a diversified base ofindustries such as building materials, automotive, manufacturing,containers, and food. This broad spectrum gives Tradition a stableclient footprint.
APSI also owns an asset-based fleet of 162 company-ownedtractors, some 303 trailers, and six warehouses totaling two millionsq. ft. In terms of assets, Tradition Transport is a solid investmentthat delivers revenue and net income via this fleet. It also acquiredAnchor Bolts & Fasteners, LLC, a company that manufactures boltsand fasteners as well as custom plates, cages, and embeds.Tradition's goal is to acquire another 200+ tractors and some 400trailers in 2023 and 2024.
More deployment centers for Tradition are scheduledto open in Savannah, Nashville, Dallas, and Indianapolis. M&A ison the horizon. In addition to its organic growth structure, TraditionTransport is already reviewing future potential buyout candidatesrelated to the businesses.
Tradition is also planning to grow itsinternational business, and already serves freight to and from Mexicoand Canada.
APSI Stock Is Undervalued: A Significant Opportunity ForInvestors
Tradition's parent, APSI, has just 17,204,180 sharesoutstanding, and its pricing remains undervalued in the transportationindustry. By any measurement of revenue, net income, or assets, itdeserves better. In fact, it should trade at well above $1 pershare—and perhaps closer to $6-7 per share. Financial experts wouldagree that the APSI market cap makes no mathematical sense as itcurrently stands.
A valuation based on industry standards compared to 10competing publicly traded transportation companies finds that themedian enterprise LFY valuation in this sector is 1.6X revenues. Thatwould translate into an APSI market cap of some $200 million, based on2022 full year sales of $125 million.
A valuation based on typical sector multiples— such as the average enterprise based on LFY having 3.2 timesrevenues — means APSI would have a market cap of $400 million with ashare price of $23.25. Even a one-time revenue share price at theestimated 2020 sales of $125 million would translate into $7.26 pershare.
APSI MayBe One Of Most Undervalued Companies Publicly Listed
APSI may be one of the most undervaluedcompanies publicly listed when industry or sector multiples areapplied. APSI has already filed an application with the SEC for anuplist to the OTCQB exchange. A NASDAQ listing is its ultimate goal.When this stock uplists, investors will notice. Investors should keepAPSI on their watch lists because of the company’s asset-basedacquisitions in the hot transport business — freight, logistics,warehousing, brokerage, leasing, and more.
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