Prolonged low rates = time to short trucking stocks?

Discussion in 'Ask An Owner Operator' started by double yellow, Apr 27, 2015.

  1. double yellow

    double yellow Road Train Member

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    With rates staying so low for as long as they have, I'm thinking it shouldn't take long for the big publicly traded trucking companies to miss expectations. Which companies would you bet against? Are there any you would bet on?


    Here's my list I'm considering:


    Potential Shorts:
    USA Truck (USAK) 46 PE, 2.9 PB, 1% margin, 6% ROE, Current ratio: 1.6, Debt/Equity: 112%
    PAM (PTSI) 27 PE, 4.7 PB, 4.2% margin, 0 ROE, Current ratio: NA, Debt/Equity: 107%
    Celadon (CGI) 18 PE, 2.4 PB, 4.4% margin, 14% ROE, Current ratio: 1.4, Debt/Equity: 161%
    Covenant (CVTI) 29 PE, 3.6 PB, 2.5% margin, 13% ROE, Current ratio: 1.5, Debt/Equity: 120%


    Ignore:
    JB Hunt (JBHT) 27 PE, 8.3 PB, 6.4% profit margin, 34% ROE, Current ratio: 1, Debt/Equity: 69%
    Forward Air (FWRD) 29 PE, 3.4 PB, 6.9% margin, 12% ROE, Current ratio: 1.7, Debt/Equity: 27%
    Echo Global (ECHO) 40 PE, 4 PB, 1.5% margin, 10% ROE, Current ratio: 1.5, Debt/Equity: 0
    Hub Group (HUBG) 29 PE, 2.5 PB, 1.4% margin, 9% ROE, Current ratio: 1.6, Debt/Equity: 18%
    CH Robinson (CHRW) 23 PE, 10 PB, 3.3% margin, 45% ROE, Current ratio: 1.3, Debt/Equity: 106%
    UTi Worldwide (UTIW) N/A PE, 2 PB, -5% margin, -29% ROE, Current ratio: 1.6, Debt/Equity: 76%
    Swift (SWFT) 22 PE, 8.8 PB, 3.75% margin, 42.75% ROE, Current ratio: 1.9, Debt/Equity: 319%



    To hedge, potential long candidates:
    Heartland (HTLD) 21 PE, 3.9 PB, 10.6% margin, 20% ROE, Current ratio: 2, Debt/Equity: 0%
    Landstar (LSTR) 21 PE, 6 PB, 4% margin, 29% ROE, Current Ratio: 1.8, Debt/Equity: 30%
    Expeditors (EXPD) 24 PE, 4.8 PB, 5.7% margin, 19% ROE, Current ratio: 2.3, Debt/Equity: 0%
    Knight (KNX) 22 PE, 3.6 PB, 9.9% margin, 18% ROE, Current ratio: 2.2, Debt/Equity: 11%
    Werner (WERN) 19 PE, 2.5 PB, 5% margin, 13% ROE, Current ratio: 2, Debt/Equity: 9%
    Martin (MRTN) 22 PE, 2.0 PB, 5.2% margin, 9% ROE, Current ratio: 2, Debt/Equity: 0%
     
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  3. double yellow

    double yellow Road Train Member

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    Interesting point. So looking at USA Truck's 2014 revenue:


    usa truck.jpg

    With the fuel surcharge dropping from $0.43 in 2014 to $0.27 Q1 2015, that means they'll potentially lose $32 million in fuel surcharge revenue ($55m instead of $87m). That will be offset by a 5% linehaul increase of $21 million.


    On the expense side:

    usa2.jpg

    Their fuel expense would go from $116m to $86m -- a savings of $30m

    So they should actually save $19m in total.


    Unfortunately, USA truck was not one of the companies that raised pay last year so you couldn't count on more driver expense offsetting its linehaul, meaning they might actually go from a profit of $6m to a profit of $25m for the year -- not a good candidate for shorting!!
     
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  4. Dale thompson

    Dale thompson Road Train Member

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    the low rates are kind of a myth the 3pl companies are reporting strong earnings on increased margins at least that is what I read in transport topics
     
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  5. TAfool

    TAfool Medium Load Member

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    Since you are an F/A guy you may not agree with this one. SWFT is a short in my book. Technical position. Stop $30.51 t/p $10.28ish.

    TA
     
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  6. rollin coal

    rollin coal Road Train Member

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    I started working spot open market freight in the fall/winter of 2011. Just getting started I was having a rough year of it and did not do so well. Looking back my gut tells me that it was probably a stellar quarter but I really didn't know wth I was doing so I missed out on it. 2012 was my best year ever with 2013 a close second. 2014 was a decline downwards.

    2015 got off to a rough start and just keeps getting worse and worse. Like I told someone else the wild, wild west days don't last forever. It was good while it lasted. Shippers aren't stupid they will do what they can to mitigate wild upward swings with spot. Based off my little snapshot of numbers month to month year to year it has been a steady decline up until 2015 where it has just dropped off of a cliff.

    The freight has dried up on loadboards and all went to contract carriers is what I think year after year. Add in a drastic drop in fuel prices, oil filed bust, overall much weaker economy and you have perfect storm for too many trucks and not enough freight. Remember a few years ago when it was the perfect storm and trucker's market?

    That's how cycles go. Times like this are when direct should make all the difference in the world if you have enough of it. Still see highways clogged up with trucks every day. Somebody has freight and is moving a lot of freight but it's not guys like me working off loadboards.
     
    Last edited: Apr 30, 2015
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  7. Dale thompson

    Dale thompson Road Train Member

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    yup when the spot market stays hot for a few months it opens the door for dedicated
     
  8. icsheeple

    icsheeple Trailing the Herd

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    Real doom and gloom......
     
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  9. TAfool

    TAfool Medium Load Member

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    Hey DY, you notice SWFT? Down about 30% from when the short was suggested. Still sticking with my original target.

    TA
     
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  10. chalupa

    chalupa Road Train Member

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    Why would you even look at trucks and their slim margins. Very few have O/R's under 90%, most are near 100.
    For me I like UNG. Gas is tied directly to mfg and heating. We have a strong El Nino forming that will produce a cold and wet winter. OBummer just trashed the coal industry forcing generators to switch to gas etc. and etc. Plus Wall street just dumped a bunch of value. UNG is $12 and I'm calling $20 by winter.

    Who wants to ride along?
     
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