The Company is a short-to-medium haul truckload carrier based in Iowa. The company provides nationwide transportation service to major shippers. and it mainly operates east of the Rocky Mountains, hence the name Heartland. Its average distance for shipments is 523 miles. Think of Heartland as the Southwest Airlines (LUV) of the trucking industry before Southwest went nationwide.
The company’s president is Russell Gerdin. He has held that post since 1978 and chairman of the board since 1986. In an era when CEO’s are being fired at a rapid pace Heartland has shown stability. Russell’s compensation is at a modest 300K.
The company’s revenue is growing at 8% (10 yr growth rate10.6%) and is expected to increase at 9% in 2007. EPS is growing at a whopping 27% and expected to grow by 20%+ (10 yr growth rate 20.5%). Future growth as explained in their last quarter report will come from “economic growth, growth in customer demand, available capacity in the trucking industry, potential acquisitions, and availability of experienced drivers.” In addition, any time gas prices fall Heartland will benefit from it.
What impresses me the most is Heartland’s balance sheet and profitability where it is clearly an industry leader and the reason why I love it. When I started researching the company, it only became more attractive. The balance sheet is as good as it gets. It has a 5-1 assets to liability ratio. It has a mere $92 million in current debt.
In an industry where EBT is below 10% Heartland is best of breed at 24.5% (ttm). This is by far number 1 in the industry with Knight (KNX) coming in second with 18.1%. Its operating margin is also tops at 22.6%. It has a trailing twelve month ROE of 19% with a 5 yr average of 18%. The company’s ROA is 14.82 %(ttm) with a 5 yr average of 13%.
Below are other interesting facts I found about Heartland in their last 10-Q:
*The company has paid its dividend for the past 13 consecutive quarters
* It only hires experienced drivers with good records
*It has been in Forbes magazine “200 Best small companies in America” 15 of the past 20 years
*Pay increases for its drivers come from additional miles driven; The company is a leader in driver compensation
The contrarian in me almost passed this baby up. When I look at an industry, I always start with the lowest P/E in the group and choose the 5 lowest to research. Fortunately for me, I saw Heartland's beautiful operating margins and added it to my “companies to research” list.
The stock currently trades at a P/E of 16.5. The P/E of 16.5 is almost equal to the industry’s P/E of 17 and below the S&P’s 20.6.The stock also trades well below its 5 yr. P/E of 22. Book Value wise, it trades at 3 times book value. The industry P/BV is at 2.4 and the S&P 500 is trading at 4.1. The company has consistent and growing free cash flow. The free cash flow is an addition to the already impressive balance sheet.
The stock in my opinion is worth at least $20 and I would buy at or below $15. At $15 you have a margin of safety of 25%. Companies that are well run like Heartland usually trade at a premium and in my opinion the recent selloff has created a buying opportunity. I plan to buy at $15 and will continue buying if the stock price drops. On November 20, an insider bought the stock at $16.20, this tells me that somebody thinks their stock is cheap :) .
This stock is definitely a long term hold. The economy is heading into a recession and Heartland might hit a couple of speed bumps along the way. I checked how the company performed during the last recession and saw positive results. During the recession at the turn of the millennium, the company reported consistent EPS of .07. Other companies I like are J.B. Hunt Transport Services, Inc (JBHT) and KNX, but by far I like Heartland the most.
HTLD 1-yr chart:
Disclaimer: The author does not hold HTLD but is long on the stock.