Another Systemic Shock Creates Another Opportunity With Kirby

Barge operator Kirby (KEX) often trades at a robust premium during the good times; while the company’s historically strong operating margins and strong market share would support that to some extent, I’ve often thought that the valuation was just too rich in recent years – and the stock’s performance relative to the S&P 500 has been pretty poor over the last five years. Some of that can be tied to the company’s ill-fated expansion into fracking-related oil & gas machinery services, but some of it, I believe, is also tied to actual underlying free cash flow performance not being as robust as the valuation would other presuppose and the cyclicality of the business itself.

That may seem like a downbeat intro, but I actually think Kirby is a good company. The expansion into oil & gas within the Distribution and Services (or DES) business is an issue, but the core marine operations (inland and coastal barging) are about as solid as you could ask for, and I see little reason to believe that will change. Covid-19 has created some severe disruptions in the energy market, not to mention the economy as a whole, but I believe Kirby offers interesting long-term opportunity at this price.

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Another Systemic Shock Creates Another Opportunity With Kirby