Alta Fox Capital - Daseke, Inc.: A Key Beneficiary Of The US Infrastructure Bill

Summary

• DSKE has fallen 35% from all-time highs and now trades at a ~20% normalized forward FCF to equity yield.
• The ongoing shift in consumer demand from goods to services has caused a violent sell-off in dry van related trucking companies.
• As we look to 2023, Daseke will be a key beneficiary of the US infrastructure bill.

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The following segment was excerpted from this fund letter.

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Daseke (NASDAQ:DSKE)

DSKE has fallen 35% from all-time highs and now trades at a ~20% normalized forward free cash flow to equity yield based on our estimates and <7x 2022 PE.

Daseke is the largest flatbed/specialized trucking company with ~1% market share in an extremely fragmented $100B US flatbed/specialized market (transport industrial, military and energy materials/equipment). Scaled operators have meaningful competitive advantages over small, independent carriers. These advantages include better contract terms, higher asset utilization, and preferred pricing on equipment, fuel, and insurance.

The ongoing shift in consumer demand from goods to services has caused a violent sell-off in dry van related trucking companies (transport consumer packaged goods) as dry van spot rates have declined by over 20% YTD. Daseke's stock, being the only publicly traded flatbed/specialized pure play operator, has been the "baby thrown out with the bathwater" and has sold off alongside dry van operators. Meanwhile, flatbed spot rates continue to hit all-time highs as the US industrial economy recovers and leading indicators like new housing starts further increase.

As Daseke's new management team continues to execute on its ongoing restructuring efforts (reducing operating companies from 11 to 4 and further optimizing fleet utilization) we believe that EBIT margins can improve by ~600 basis points through the cycle from current levels.

Finally, as we look to 2023, Daseke will be a key beneficiary of the US infrastructure bill (a generally underemphasized macro theme) and should see $500B of incremental government spend bolster its end markets over the coming years. We expect this to provide a multi-year tailwind to flatbed/specialized trucking demand.

In the context of ongoing internal improvements, Daseke's competitive advantages, and a comparatively exciting macro setup when looking across the broader market, we believe Daseke's <7x PE multiple (vs dry van peers at like KNX/WERN at 9-10x and HTLD at 14x) is far too cheap. We have recently encouraged management to initiate a meaningful buyback to take advantage of these depressed prices. Our full published analysis can be found here.

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Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.