The Logistics Of LINC's Initial Public Offering

| About: LINC Logistics (LLGX)

LINC Logistics (LLGX) Announces Pricing Of IPO Shares

LINC Logistics is pricing 11.3 million shares at a price range of $14.00 to $16.00 per share. The logistics company hopes to raise $170 million in the deal, valuing the business at a market cap of $460 million. The IPO is expected to price this week. Of the 11.3 million shares offered, 1.42 million are being sold by an individual shareholder and the company will not receive proceeds from them. The underwriters of the deal are: Citigroup, Stifel Nicolaus Weisel, RBC Capital Markets, Baird, Comerica Securities, and The Huntington Investment.

LINC Logistics' Business

LINC Logistics offers a full suite of third-party logistic solutions to companies in multiple sectors. LINC's services are such an integrated part of its customers supply chains that typically the company is contracted for the duration of its customers production programs. These typically last from three to five years. The majority of LINC's revenue (63.7%) is derived from the automotive industry. Its primary customers are affiliates from Ford (NYSE:F), General Motors (NYSE:GM) and Chrysler.

LINC Logistics will qualify as an "emerging growth company" under the JOBS Act, but it has not specified whether it will take advantage of any of the exemptions offered to it by the Nasdaq. It will also be considered a "controlled company" by the Nasdaq, due to the majority ownership of Matthew T. Moroun and Manuel J. Moroun. Read these articles for more information on what the controlled company and the emerging growth company designations mean for a specific stock.

The Third-Party Logistics Market

The logistics market has grown a compound rate of more than 10% nearly ever year since 1996, except for a 15.7% decline in 2009. What was considered a $30.8 billion market in 1996 has expanded to $141.2 billion market as of last year. Analysts believe the market has resumed its growth rate and 2011 grew by 10.9%. Overall growth is being fueled by increasing complexity of supply chains and pressure on companies to reduce costs and increase efficiency.

LINC Logistics' Competition

The competition in LINC's market is intense and comes from many different types of companies. Some of LINC's services are offered by companies like airlines, integrated transportation companies and associations of shippers. In addition to large companies handling their own logistics, LINC competes with subsidiaries of public companies and a small number of private companies. Some of the publicly traded competitors are C.H. Robinson (NASDAQ:CHRW), FedEx (NYSE:FDX), Forward Air (NASDAQ:FWRD), Hub Group (NASDAQ:HUBG) and Ryder Systems (NYSE:R).

LINC Logistics' Financials

After discounts, expenses and commissions, LINC expects its net proceeds will be around $138 million from the offering. It plans to use the money to pay down debt, pay dividends to its shareholder CenTra and repay several credit facilities.

Both revenues and net income at LINC have steadily increased over the past three years. In 2009 the company made $178 million and had a net income of $16 million. Last year it reported over $290 million in revenue and $35 million of net income.

On April 20th of this year, 4% of LINC's total employees elected to join a collective bargaining unit contracted directly with GM. LINC believes this may result in lower revenues from the GM operation. (LINC's S1)

Upon completion of the offering LINC will have an EPS of about $1.16. This would give it a P/E ratio of 12.93, assuming the stock prices at the midpoint of the range. LINC Logistics also plans to offer a dividend later this year of $0.038 per share.

All three of those numbers are below that of its publicly traded peers. Forward Air and Hub Group have earnings per share of $1.69 and $1.68 and P/E ratios of 19.2 and 20.8, respectively. FedEx and Ryder have P/E's closer to LINC's at 14.1 and 13.7, but those companies also have earnings per share that are significantly higher at $6.33 and $3.44.

How To Trade LINC Logistics

LINC has strong revenues and good income but the earnings per share number is well below other companies in its sector. While its business is strong, revenue growth may slow down to a pace more inline with industry averages. A small $0.038 dividend may not be worth holding the stock for most investors, as companies like Ryder Systems pay a $0.29 dividend and C.H. Robinson pays a $0.33 dividend. Analysts seem to agree there will be more consolidation in the industry and LINC may be worth a look if you see them as a takeover target.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.