Saia Stock: Buy for Trucking Industry Exposure 2022 (SAIA)

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Saia Inc. (SAIA) has become one of the best performing trucking stocks over the past five years, outperforming the S&P 500 up to 4 times during that time. This is impressive given that the broader transportation sector – represented by iShares US Transportation ETF (IYT) and SPDR S&P Transportation ETF (XTN) – has underperformed the S&P 500 by more than 50% over this period.

SAIA 5-year return vs S&P 500, IYT and XTN

SAIA 5-year return vs S&P 500, IYT and XTN

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SAIA has outperformed the S&P 500 by more than 4 times and transport sector ETFs by nearly 10 times over the past 5 years; Source of the graph: In search of Alpha

Even among its trucking peers, SAIA has been an undisputed winner in terms of stock price appreciation. The table below compares the 5-year return of SAIA with the respective 5-year returns of a representative sample of publicly traded trucking companies such as XPO Logistics (XPO), TFI International (TFII), Knight-Swift Transportation Holdings (KNX) and JB Hunt Transport (JBHT) illustrate this point.

Society

Market capitalization

Return over 5 years (as of January 28, 2021)

SAIA

$7.3 billion

434%

XPO

$7.5 billion

132%

TFI

$8.5 billion

158%

KNX

$9.1 billion

63%

JBHT

$20.5 billion

90%

Data Source: Seeking Alpha

Since the beginning of 2021, and particularly from the second quarter, the trucking industry as a whole has benefited from positive investor sentiment. Supply chain constraints and high demand have led to sustained increases in freight rates, driving record revenue growth across the industry and triggering aggressive stock price increases of publicly traded trucking companies , including SAIA.

It should be noted that most of SAIA’s returns over the past five years have come in 2021, when the demand and supply dynamics in the trucking industry and the transportation sector in general have shifted for companies providing these vital services.

Trucking service rates are expected to remain high for most of 2022 as demand continues to outstrip supply, providing trucking companies with the opportunity to continue to grow revenue vigorously. business. 74% of truckers surveyed by TruckStop.com and Bloomberg expect rates to stay the same or increase in 2022.

Investors looking to take advantage of prevailing conditions in the trucking industry would do well to subscribe to a proven investment adage – winners keep winning. As long as revenue growth remains the predominant theme in the trucking industry, SAIA will, in our view, continue to outperform its peers.

Below are the top three reasons why we maintain this bullish view.

1. High-quality revenue growth that is less dependent on debt

Analysts expect SAIA to report revenue of approximately $2.27 billion for the fiscal year ending December 31, 2021, when it announces its fourth quarter 2021 and full year 2021 results. February 2. reported annual revenue of $5.53 billion in 2021 and is expected to reach $7.20 billion in 2022. Similarly, XPO is expected to report revenue of $12.68 billion when it announces the full year 2021 and $13.3 billion for 2022.

At first glance, SAIA appears to be in a less competitive position than KNX and XPO, both in terms of revenue generated and the pace of year-on-year revenue growth. However, a face value assessment of the top numbers overlooks important considerations that speak to the quality of revenue growth.

Trucking industry revenue is primarily dependent on freight rates and the number of commercial vehicles operated by a particular trucker. Freight rates are fairly consistent for most players. This means that the real long-term differentiator is the investments a trucker makes to increase the size as well as the yield potential of their fleet. But there is a catch. Investment in fleets is capital-intensive and the growth of income from these investments can prove counterproductive if the investments lead to an unsustainable accumulation of debt.

If you look at SAIA’s long-term solvency ratios compared to KNX and XPO, it immediately becomes apparent that SAIA has been more thoughtful about using debt to fuel growth. It is a very positive indicator. The heavy dependence on debt weighs on future cash flows. This will become a particularly pressing issue in the months and years ahead as the cost of borrowing rises in line with the Fed’s planned rate hikes.

SAIA

KNX

XPO

Total Debt to Equity (MRQ)

14.17

34.20

434.35

Total Debt/Capital (MRQ)

12:41 p.m.

25.48

81.29

Long-term equity (MRQ)

10:65 a.m.

29.65

412.80

LT Debt/Total Equity (MRQ)

9.33

22.09

77.25

Total Liabilities/Total Assets (MRQ)

36.02

38.59

88.09

Long-term solvency ratios of SAIA compared to certain peers; Source: Alpha Research

If these ratios are unconvincing, consider that for the last quarter at the time of writing, SAIA had cash of $121 million against total debt of $162 million. KNX, on the other hand, had cash of $261 million against total debt of $2.24 billion, while XPO had cash of $254 million against total debt of $4.41 billion.

2. Attractive profit margins with better insulation against cost surges

In addition to a growth in its turnover which does not weaken its balance sheet, SAIA also displays relatively attractive profitability margins compared to its peers. The table below showing its key comparison with XPO and KNX illustrates this.

SAIA

XPO

KNX

Gross margin

24.87%

16.14%

32.81%

EBITDA margin

19.70%

8.91%

25.74%

Net profit margin

10.24%

1.84%

12.39%

While KNX has higher margins, SAIA’s distinct advantage is that it has fewer employees, which is a key benefit at a time of raging wage inflation amid a truck driver shortage. . SAIA has 10,600 employees compared to 22,800 for KNX and 42,000 for XPO. A reduced workforce means SAIA is insulated from cost increases resulting from salary increases in the trucking industry, protecting profitability and cash flow.

3. A history of increasing shareholder value

Finally, SAIA appears to have a more shareholder-friendly management team and board. This is inferred from the regularity with which it has increased equity over the past decade by increasing retained earnings (as opposed to stock offerings).

SAIA Common Equity Statement for 10 years

Retained earnings increased sharply

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The same cannot be said for peers like XPO, which experienced negative retained earnings between 2012 and 2017.

XPO and KNX have been involved in M&A activity in recent years (XPO a divestiture in 2020 and KNX a merger in 2017) – something SAIA avoided. While there is nothing inherently wrong with mergers and acquisitions, they do carry the risk of diverting management’s attention from executing its strategy. Changes in the ownership structure and number of shares outstanding that accompany most M&A transactions (the KNX merger in 2017, for example, was an all-stock transaction) can also have an impact. unintended effect on investor return cycles. We believe SAIA has been more consistent in its growth strategy, which we believe is simpler and more predictable. This is a positive point with regard to the interests of shareholders.

Conclusion

SAIA has proven that it can generate profitable organic growth without weighing on the balance sheet and this should remain a lasting point of attraction for bulls.

Although SAIA is not the cheapest stock – PE (FWD) of 28.67 and EV/EBITDA (FWD) of 15.88 – we think this premium is justified. The stock, which is showing a strong buy in the quantitative rankings, should continue to outperform its peers. It’s a solid buy for anyone looking to get their feet wet in the trucking industry.

About Clara Barnard

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