Trading On margin

Saia: top-ranked fundamentals – GuruFocus.com

When earnings go up, the stock price goes down. This is in a nutshell the story of 2022 for Saia Inc. (SAIA, Financial), a LTL company. Indeed, its revenues have grown at an average rate of 25.66% per year over the past 10 years. Still, the stock price started falling late last year and still hasn’t recovered, creating a rare margin of safety.

About Saia

Saia is a transportation company that specializes in LTL services, or LTL services, i.e. shipments between 400 and 10,000 lbs. According to its website, the company handles more than 30,000 daily shipments, uses 185 terminals and employs 12,000 people. It serves the contiguous United States as well as Alaska, Hawaii, Puerto Rico, Canada and Mexico.

Initially created in 1924, it has grown through both organic growth and acquisitions. It comprises two operating groups: Saia Logistics Services and LinkEx.

For LTL carriers, technology is a key part of the business model. In its 10-K for 2021, Saia explained: “LTL carriers typically pick up many shipments, typically ranging from 100 to 10,000 pounds, consolidate them at freight terminals operated by local carriers, and then transport the shipments from the terminal. to the destination operated by the carrier. terminal for delivery to the final destination. As a result, LTL carriers need extensive networks of pickup and delivery operations around local freight terminals and line haul operations to transport freight between local terminals.

Competition

In its second quarter 2022 investor presentation, Saia said it was the ninth largest LTL carrier in the United States.

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As the company’s investor materials slide above suggests, there are many competitors, ranging from giants like FedEx Corporation (FDX, Financial) to local truck delivery services. Other major LTL carriers include Old Dominion Freight Line Inc. (ODFL, Financial), YRC-Yellow Corporation (YELL, financial) and XPO Logistics Inc. (XPO, Financial).

Despite the competition, Saia said in its presentation to investors that it expects significant growth in the coming years.

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Financial solidity

Based on interest coverage ratio, debt-to-income ratio and Altman Z-Score, Saia receives a high GuruFocus ranking for its financial strength:

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The company has been quite conservative in its use of debt, as evidenced by the dark green bars (dark green signifies industry leader). This is backed by a Piotroski F-Score of 9 out of 9, indicating excellent financial management.

Moreover, the weighted average cost of capital (WACC) compared to the return on invested capital (ROIC) shows that this company creates value for its shareholders. The WACC is 9.19% while the ROIC is more than double at 23.02%.

Profitability

GuruFocus gives this company a high profitability ranking based on operating margin, Piotroski F-Score, operating margin trend, profitability consistency and business predictability rank.

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Its operating margin is 17.17%, more than double the transportation industry median of 6.46%. The Piotroski F-Score is as high as it gets. The operating margin has increased by an average of 11.56% per year for the past ten years:

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In terms of consistency, profitability has grown steadily over the past decade, with earnings per share without one-time items averaging robust growth of 25.66% per year.

It has an adequate, but not convincing, trading predictability rating of 3.5 stars. This ranking is based on the consistency of revenue per share and EBITDA per share over the past 10 years.

Growth

Saia gets full marks for growth with a GuruFocus Growth Ranking of 10 out of 10:

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The first thing to observe on this chart is the differences between revenue growth, EBITDA and EPS without NRI. The EPS growth is roughly three times the revenue growth, indicating that the business is operating very effectively and efficiently.

This growth in EPS does not only cover the last three years, it has been true for the last 10 years:

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Free cash flow growth was less steady. Growth has been very rapid over the past two years, but the rest of the past decade has been a rollercoaster:

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Dividends and share buybacks

Saia does not pay dividends and has a three-year average buyback rate of -0.7. This means that the company has issued more shares than it has repurchased. The average share buyback rate fell further to -0.91% over the last decade.

The company noted in its annual report: “Under our current credit facilities, we are subject to certain covenants, which limit our ability to pay dividends and redeem our share capital, require us to maintain a minimum ratio debt service coverage and provide for a maximum leverage ratio, among other restrictions, which may limit the availability of capital to meet our future growth.

Evaluation

The company scores a slightly above average GF Value ranking at 7 out of 10, based on its GF price-to-value ratio:

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The GF price-to-value ratio shows the relationship between the current stock price and the GF value. As of the close of trading on October 18, the stock price was $205.20, while the GF value was $252.73. This indicates a modest undervaluation and a margin of safety of 23.16%.

The GF Value ranking, on the other hand, indicates how well the stock is likely to perform over time based on the performance of other stocks with the same price-to-GF-Value ratio in a historical GuruFocus study.

The PEG ratio also indicates an undervaluation, mainly because its Ebitda is rising so rapidly. Over the past five years, Ebitda has increased by an average of 23.45% per year.

Even the discounted cash flow calculator sees a severe understatement and a large margin of safety based on the following assumptions:

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For the DCF calculator, I estimated a 10-year growth rate of 20% per year, which is well below the historical average growth rate of 25.66%, and a discount rate of 11%.

Saia has one of the highest GF scores available on the market at 97 out of 100:

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Gurus

Six of the investment gurus tracked by GuruFocus held stakes in Saia at the end of the quarter, including:

Institutional investors have taken to Saia; they now hold 98.73% of the outstanding shares. Insiders own 1.4%, with Chairman and CEO Frederick J. Holzgrefe, III taking the largest stake among insiders with 14,623 shares.

Conclusion

Saia has many features that are popular with investors. It has modest debt and an undervalued stock price. The valuation metrics we looked at suggest healthy margins, and the company has seen tremendous growth over the past decade.