Swift TYransportation (SWFT) went public less than a year ago. Things were fine in the beginning, but the stock lost more than 60% of its value at one point since spring. The stock dipped below $6 just a few weeks ago.
Things have turned around a little bit. The company’s Q3 earnings beat analysts’ estimates. Swift earned 25 cents a share during the third quarter, while analysts were expecting earnings of 22 cents a share on average.
Dan Loeb probably regrets increasing his position in SWFT by 161% to 6 million shares (worth $80+ million at the time) during the second quarter. Steven Cohen and Jeffrey Vinik also invested small amounts in SWFT. We are going to take a closer look at SWFT and other transportation services companies, including JB Hunt Transport Services (JBHT), Landstar System (LSTR), and Werner Enterprises (WERN) to determine which stocks promise higher returns for investors.
The company reported revenues of $864 million for the third quarter of 2011. SWFT is expected to earn $0.73 in 2011 and $0.88 in 2012. The stock recently traded at $9.46. Its current PE ratio (ttm) is 248.95.
Swift’s earnings are expected to grow at 18% over the next five years. This implies that its P/E ratio using its 2014 earnings is around 7.72, much lower than its current P/E ratio. JB Hunt’s expected growth rate is 17.63% and its corresponding PE ratio is 12.66. Landstar is expected to grow at 15.5%, and its P/E ratio using its 2014 earnings is around 13.35. Werner is expected to grow by 13% over the next 5 years, and its P/E ratio using its 2014 earnings is around 11.82. Swift looks undervalued compared to other stocks in the group. All stocks except SWFT have P/E ratios greater than 10.
Volatility is generally used as a measure of risk. Swift has a monthly volatility of 7.67%, JB Hunt’s is 3.81%, Landstar’s is 3.58% and Werner’s is 3.65%. Swift looks more risky than other stocks during the past 30 days.
Hedge Fund Ownership
Stocks that are favored by hedge funds tend to outperform the market by a few percentage points on average. Swift was the most popular stock among hedge funds at the end of second quarter. It was held by 19 hedge funds. Werner was the second most popular stock; fifteen hedge funds were bullish about it. Landstar was also held by 15 hedge fund managers, and 10 hedge funds were bullish about JB Hunt. Jeffrey Vinik is bullish about both JB Hunt and Swift.
Stocks purchased by insiders tend to outperform the market on average. Swift was purchased by seven insiders during the past three months. Insiders paid around $6.65-$7 per share at the end of August. They made more than 30% from their purchases, beating the SPY by a huge margin. JB Hunt was also purchased by two insiders. Other stocks do not have insider purchases during the same period.
Overall our analysis points out that Swift is an undervalued compared to the other stocks in the group. It is also the most popular stock among hedge fund managers and corporate insiders, indicating some form of perceived value in the stock. Although SWFT lost about 50% from June to August, the stock rebounded from the beginning of this month and is likely to continue the good performance as the company’s business performance is getting stronger. We like Swift, and we urge investors to do an in-depth analysis of the stock for their portfolios.
Disclosure: I am long SPY.