Sector Watch: Keep on truckin’
Although record fuel costs have hurt transportation stocks for the most part, Marten Transport (Nasdaq:MRTN) and Dynamex (Nasdaq:DDMX) are faring better than most due to their focus on niche markets and should be among the first to recover when the economy strengthens.
Marten Transport is a leading transporter of food and other goods that require a temperature-controlled environment. Approximately 80% of the $560 million in revenues Marten generated in 2007 were from deliveries of temperature-controlled products. The company’s main transport routes are between the midwest and west coast, southwest, southeast and the east coast. Average haul length is around 900 miles.
Marten’s fleet includes over 2,400 company and independent contractor tractors. Its track record of 99% on-time delivery is a major selling point to customers shipping perishable goods.
During the first six months of 2008, Martin boosted truckload revenues 5.5% year over year to $255.2 million from $241.9 million and logistic revenues, which consisted of brokerage and intermodal operations, logistics revenue increased 69.7% year over year to $48.2 million from $28.4 million. However, net income fell to $6.1 million, or $0.28 per share, for the six-month 2008 period from $8.9 million, or $0.41 per share, one year earlier due to soaring fuel costs, Marten is addressing fuel cost challenges by expanding its asset-light logistics business, reducing fuel consumption per load through shorter hauls and regional routes, and installing auxiliary power units on rigs that provide heat, air conditioning and electricity to its drivers without running the tractor engine.
When the economy and freight traffic improves, Marten will benefit from industry capacity reductions resulting from the downsizing or failure of weaker competitors. Analysts think Marten’s earnings will fall 6% in 2008 but look for 36% growth next year and 14% average annual longer-term growth. Assuming 36% growth is achieved next year, these shares appear attractive at a 24 times forward P/E multiple. My $24 target price for Marten Transport is 15% higher than Tuesday’s closing price of $20.87.
Dynamix provides same-day, door-to-door delivery and logistics services across North America. The company also offers same-day local and regional distribution and outsourced fleet management services. Dynamix serves national and regional accounts and has a strategic delivery service alliance with Purolator.
The same-day delivery segment is benefiting from outsourcing of delivery services by businesses interested in hiring one vendor who can service multiple cities. The trend favoring “just-in-time” inventory also increases demand for same-day delivery, as does email and other services that accelerate the pace of business transactions.
Dynamix improved sales 10.2% in the fiscal year ended July 31, 2008 to $455.8 million from $413.8 million last year. Excluding a one-time benefit recorded last year, FY 2008 net income improved 17.6% to $15.8 million, or $1.53 per share, from $15 million, or $1.39 per share, in FY 2007. Looking forward, the company anticipates 7% to 9% sales growth in FY 2009 and per-share earnings ranging between $1.50 and $1.60. The company anticipates that top-line growth will be partially offset by a weaker Canadian dollar, a higher effective tax rate and a one-time $1.5 million payment to the company’s CEO. Analysts predict Dynamix will produce 15% growth in FY 2009 which is in line with the company’s 15 times forward P/E multiple. My $35 price target for Dynamix is 27% above Tuesday’s closing price of $27.56.
Marten Transport is a leading transporter of food and other goods that require a temperature-controlled environment. Approximately 80% of the $560 million in revenues Marten generated in 2007 were from deliveries of temperature-controlled products. The company’s main transport routes are between the midwest and west coast, southwest, southeast and the east coast. Average haul length is around 900 miles.
Marten’s fleet includes over 2,400 company and independent contractor tractors. Its track record of 99% on-time delivery is a major selling point to customers shipping perishable goods.
During the first six months of 2008, Martin boosted truckload revenues 5.5% year over year to $255.2 million from $241.9 million and logistic revenues, which consisted of brokerage and intermodal operations, logistics revenue increased 69.7% year over year to $48.2 million from $28.4 million. However, net income fell to $6.1 million, or $0.28 per share, for the six-month 2008 period from $8.9 million, or $0.41 per share, one year earlier due to soaring fuel costs, Marten is addressing fuel cost challenges by expanding its asset-light logistics business, reducing fuel consumption per load through shorter hauls and regional routes, and installing auxiliary power units on rigs that provide heat, air conditioning and electricity to its drivers without running the tractor engine.
When the economy and freight traffic improves, Marten will benefit from industry capacity reductions resulting from the downsizing or failure of weaker competitors. Analysts think Marten’s earnings will fall 6% in 2008 but look for 36% growth next year and 14% average annual longer-term growth. Assuming 36% growth is achieved next year, these shares appear attractive at a 24 times forward P/E multiple. My $24 target price for Marten Transport is 15% higher than Tuesday’s closing price of $20.87.
Dynamix provides same-day, door-to-door delivery and logistics services across North America. The company also offers same-day local and regional distribution and outsourced fleet management services. Dynamix serves national and regional accounts and has a strategic delivery service alliance with Purolator.
The same-day delivery segment is benefiting from outsourcing of delivery services by businesses interested in hiring one vendor who can service multiple cities. The trend favoring “just-in-time” inventory also increases demand for same-day delivery, as does email and other services that accelerate the pace of business transactions.
Dynamix improved sales 10.2% in the fiscal year ended July 31, 2008 to $455.8 million from $413.8 million last year. Excluding a one-time benefit recorded last year, FY 2008 net income improved 17.6% to $15.8 million, or $1.53 per share, from $15 million, or $1.39 per share, in FY 2007. Looking forward, the company anticipates 7% to 9% sales growth in FY 2009 and per-share earnings ranging between $1.50 and $1.60. The company anticipates that top-line growth will be partially offset by a weaker Canadian dollar, a higher effective tax rate and a one-time $1.5 million payment to the company’s CEO. Analysts predict Dynamix will produce 15% growth in FY 2009 which is in line with the company’s 15 times forward P/E multiple. My $35 price target for Dynamix is 27% above Tuesday’s closing price of $27.56.
About the Author
Contributing author Lisa Springer is an equity research analyst with nearly 20 years of investment research experience.
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