While the economic recovery in the U.S. is driving healthy demand growth for freight, it’s not benefiting truckload haulers all that much. It’s not uncommon for these stocks to underperform even as spot rates rise (largely a “sell the news” phenomenon that is driven by fears of capacity and expense growth), but I’ve still been surprised with the underperformance over the last few months even in the face of improving demand indicators.
I said that Heartland Express (HTLD) wasn’t my favorite trucking stock when I last wrote about it in October, and the performance has been lackluster. Knight-Swift (KNX) and Werner (WERN) really have done no better, though, and even the mighty and much-loved Old Dominion (ODFL) (a less-than-truckload carrier, which is a different business) has lagged the S&P 500.
I do believe that Street expectations for truckload pricing power may be too low, and I also think there is evidence of progress on margins at Heartland. These shares do look more than 10% undervalued on an EBITDA basis (using a long-term average multiple), and the P/E multiple is well below the historical norm relative to the S&P. That makes this an increasingly interesting name to me; I don’t necessarily love Heartland or its business model, but I do have a soft spot for overlooked stories and I’m starting to think this might be one.
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Strong Freight Demand Not Helping Heartland Express's Share Price
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