Wabash National (NYSE:WNC) pre-announced its Q3 2018 results in early October and the stock fell by over 20%. The stock recovered after the initial dip, but shares are now trading back below the $13 level again.
There are definitely risks to the story, but, as I previously described, Wabash National is worthy of investment dollars if your time horizon is longer than 12-18 months and if you are willing (and able) to stomach the volatility.
Wabash National's stock has traded in a 52-week range of $12.25 to $26.54, which works out to a variance of $14.29 (yes, a number that is above the current stock price). The stock is trading at $12.86, so it is currently slightly above the 52-week low (5%), but significantly below the 52-week high (106%).
Management has failed to sell the market on Wabash National's near-term business prospects, but the broader market volatility is also coming into play. To this point, the stock fell by 20% in October when management lowered its full-year 2018 guidance (updated to an adjusted EPS range of $1.50-1.55 from a range of $1.94-2.00), but shares recovered in short order. However, the recent market turmoil has wrecked serious havoc and has pulled WNC shares back down by almost 20% over the last month alone.
Investors that put money to work in Wabash National today should expect for a bumpy ride through at least 2019, but, in my opinion, the risk/reward scenario makes the stock a long-term buy at current levels.
It would be an understatement to say that Wabash has been focused on returning capital to shareholders. To start, management has bought back almost 10% of the company's total shares over the last five years.
Additionally, the board recently authorized for $100M to be added to its repurchase program. This is a meaningful figure when you consider the fact that Wabash's total market cap is currently only $720M.
Plus, let's not forget that management is paying investors to be patient. The quarterly dividend was increased in December 2017 by 25% (from $0.06 to $0.075), and management raised it again in November 2018 by 6.7% (from $0.075 to $0.08). Wabash's dividend yield is slightly above 2.4% at today's price and, more importantly, the yield is supported by the current payout ratio.
Wabash National's stock is what I consider dirt cheap below $13 per share. The stock is trading at levels not seen since late 2016.
Moreover, WNC's shares are attractively valued when compared to the company's peer group.
WNC shares look more attractive the further that you are able to look out. Investors should not expect for smooth sailing in 2019, but, in my opinion, Wabash appears to be well-positioned for the years ahead.
Wabash is a highly cyclical company, so the stock will likely go as the economy goes. As such, on one hand, the healthy 2019 and 2020 GDP predictions are encouraging news for the company's future business prospects.
But, on the other hand, the probability of a U.S. recession over the next 12 months is slowly ticking higher, as described by Jason Cawley here. However, it is important to note that most CFOs do not anticipate a U.S. recession until the end of 2020.
Investors appear to be in "risk-off" mode in the current environment, so I fully expect for WNC shares to be under pressure for at least the next few quarters. Tariffs are having a material impact on Wabash's earnings, and, in my opinion, investors should expect more of the same in early 2019. Therefore, at the end of the day, WNC shares will likely continue to trade in a wide range, so anyone trying to make a quick buck on an investment in Wabash may want to look elsewhere.
A U.S. recession would have a negative impact on Wabash's business. More specifically, the company's operations are heavily tied to economic activity, so its customers would likely purchase less of its products if business prospects appear to be declining. Therefore, a downturn would materially impact the company's stock price. However, with this being said, I do not believe that the U.S. will be entering into a recession in the near future, so this is currently not a significant risk.
Wabash is not an early 2019 story, but, instead, I believe that WNC shares are attractive if you are willing (and able) to invest for the years ahead. The stock will likely remain range-bound in the months/quarters ahead, but I believe that this small-cap company has promising long-term business prospects. As such, investors with a time horizon longer than two to three years should treat any further pullbacks as long-term buying opportunities.
Author's Note: I hold a Wabash National position in the R.I.P. Portfolio and I plan to add to my position at current levels.
Disclaimer: This article is not a recommendation to buy or sell any stock mentioned. These are only my personal opinions. Every investor must do his/her own due diligence before making any investment decision.
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Disclosure: I am/we are long WNC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.