Investment Jungle

Investment Jungle reader Tamaja picked a winner with C.H. Robinson Worldwide Inc. Tamaja’s next request is another transportation company - Heartland Express Inc. which trades on the NASDAQ under the symbol HTLD. Let’s see if this turns out to be another Rule #1 business.

Company Profile:

From Yahoo Finance

Heartland Express, Inc., together with its subsidiaries, operates as a short-to-medium haul truckload carrier of general commodities in the United States. The company provides transportation service to shippers with a combined fleet of company-owned and owner-operator tractors. It transports appliances, automotive parts, consumer products, paper products, packaged foodstuffs, and retail goods. The company’s primary traffic lanes are between customer locations east of the Rocky Mountains. As of December 31, 2006, it served short-to-medium haul market, including retailers and manufacturers with approximately 518 mile average length of haul.

HTLD has a market capitalization of $1.67B.

Financial Analysis:

You know that I like to jump right into the analysis of the Big Five.

Bringing up the return on invested capital, I see some very consistent numbers throughout the whole 10 year period. The 5 year average is 16.70% and that looks about right over the whole 10 year period as well. Great consistency.

Return on equity (not really a member of the Big Five) is rock solid as well. The 10 year average is 17.06% and the 5 year average is 16.56%. And last year’s ROE in 2006 came in at 17.67%. Consistent!

Equity growth rate has been ‘trucking’ along nicely at a clip of 16.6% over the 10 year period. It has begun to drop off slightly over the last 2 years into the 14% range.

Earnings per share growth rate has been more volatile with low EPS growth rate of 2.87% in 1999 and a high of 32.56% in 2003. Overall though, it evens out nicely to 15.30% over the 10 year period. It increases to 18.60% over 5 years and comes in at 23.61% in 2006. Trend heading in the right direction.

Sales growth rates have definitely picked up over the last 5 years as compared to the prior 5 years. Those years were pretty lean. However, the last 5 years come in at 14.46%. Over the 10 year period, it drops to 10.14%.

And cash flow growth rate has been increasing nicely from a 10 year of 14.81% to last year’s 23.36%.

All in all, this looks like a Rule #1 company to me.

Stock Analysis:

Heartland Express is currently trading at its historically low P/E of 18.35. So that is a good place to start for the future P/E.

My initial estimate at the future EPS growth is 16.60%. That comes from comparing the 9 year, 5 year and 1 year EQUITY growth rates and choosing the most conservative number. However, analysts have only forecast 10% EPS growth rate for HTLD. Being the conservative investor, I will use the analysts’ forecast.

With these numbers in hand, my sticker price works out to $10.71. With a current price of $16.70, that means that Mr. Market is asking for almost 56% more than the sticker price!

Compare your calculations with mine.

Conclusion:

Nice company. Too bad about the price. But definitely worth adding to our watch list.

Thanks Tamaja. Both your picks have made it in to the Rule #1 club!

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