Swift Transportation Company (SWFT, Financial) provides transportation services through an operating fleet of truckload equipment from over 40 terminals in or around key freight centers and traffic lanes. Swift has a high level of concentration among retail customers, especially discount and online retail, which should continue to be benefecial going forward.
It’s true that trucking is a no-moat business, unlike the rail transports (CSX Corp. (CSX, Financial), Norfolk Southern (NSC, Financial), etc.); however, considering capacity problems and current prices in the oil market, this could be a good year for shares of Swift, even if the market continues downward toward bear territory.
Swift hit a high in 2014 when it closed at $29.44. Today, the stock price rests just below $15 a share (pre-market). Yesterday, the company reported Q4 EPS of 53 cents beating estimates by 6 cents, yet the company’s revenue of $1.09 billion was down close to 5%, missing estimates by $30 million. Today you’ll likely see a spike in the stock based on this news, but over the next year you could see a $5 to $7 point move up from here.
After a rough patch in 2009 and 2010, the company is back seemingly better than ever, at least from an EPS perspective. The company’s gross margins remain solidly above 40%, ROE comes in at 36%, and if you take out the two negative years, Swift has grown pretty well in a no-moat industry.
2010:
- Sales: $2.9 billion.
- Loss: $125 million.
- Book loss: 62 cents per share.
TTM:
- Sales: $4.2 billion.
- Profit: $184 million.
- Book: $4.28 per share.
The reward at this point is a price increase stemming from a rebound in the stock back to $20, based on the company continuing to turn solid profits based on low oil and gas prices. The slump in oil and gas is good news for truckers as they can generate higher profits on the same level of sales. If they’re playing it right, Swift is also hedging against a future run up in gas prices.
The stock has sparked the interest of billionaire investor Steven Cohen. Looking at the latest 13F filing, his family office Point72 owns a 2.8% stake in Swift valued at $37.5 million based on the pre-market price. This means investors buying in below $15 are still getting a bargain based on his original reported price. He joins Vangaurd, Invesco, and Wellington as significant shareholders.
The risks with this company are tied to demand and trader sentiment. The American Trucking Association reported its truck tonnage in November, stating that the index fell 0.9%, and that the high level of retail inventory could add to the slump in trucking demand.
The stock has already accumulated a short position of close to 31%, which would take about 10 days to unwind based on the current short ratio. This could be good news if the stock sees more light to the upside. Just two years ago, I saw another trucking stock YRC Worldwide (YRCW, Financial), which did not have the same fundamentals as Swift, pop from $10 to $20 in a few months, but now sits back below $10. This is not a long term trade, but at this price, the reward may be worth the risk.
Disclosure: I have no positions in the stock.
