Heartland Express: A Solid Company at a Fair Price

This debt-free company is fairly valued and has long-term potential

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Oct 20, 2021
Summary
  • Heartland has a robust balance sheet and good profit margins.
  • The company is facing some short-term challenges, but long term prospects look good.
  • It's a solid pick for the conservative investors and a decent bond substitute.
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While perusing the GuruFocus database of thousands of stocks, a stock with no warning signs is rare, as you see with Heartland Express Inc. (

HTLD, Financial), an Iowa-based truckload transportation and logistics company.

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GuruFocus numbers are very complementary to the company, giving it 9 out of 10 on financial strength, 9 out of 10 in valuation and 7 out of 10 in profitability. The GF Value Line shows the company is undervalued at present.

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The company has a very strong balance sheet with no long-term debt.

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Revenue and earnings trendlines are somewhat flat over the last three to five years. The stock has been declining for several years, which is not too surprising given value stocks have been out of favor.

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However, the company's equity continues to grow nicely at a high single-digit percentage pace.

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The business does requires heavy capital expenditure spending compared to its size since it is an asset-based business. As a result, operating cash flow is strong, but free cash flow is negative.

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The company does appear to be under pressure as a result of labor shortages. The industry as a whole is facing increasing pressure to recruit and retain drivers. In the quarterly report, CEO Mike Gerdin said, "Freight demand has continued to be strong and has reached unprecedented levels throughout the third quarter of 2021 and we expect these trends to continue for the remainder of 2021 and well into 2022. We also believe that hiring and retention of employees has reached levels of unprecedented challenge across our industry for both carriers and shippers."

The company's operating margins are lower than they were in the earlier part of the decade, but net margins appear to be holding up well.

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While the company is facing some short-term challenges, the long-term potential of this well-managed company is good. I think the company can deliver worry-free, annualized double-digit capital gain results in the next three to five years. In my opinion, this stock is a good bond substitute as it carries no long-term debt and is increasing equity steadily, as can be seen in the book value trend line.

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Disclosures

I am/ we are currently short the stocks mentioned. Click for the complete disclosure
Rating:
5 / 5 (1 votes)
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