We came across a bullish thesis on Heartland Express, Inc. (HTLD) on Value Degen’s Substack by Unemployed Value Degen. In this article, we will summarize the bulls’ thesis on HTLD. Heartland Express, Inc.’s share was trading at $11.38 as of Oct 22nd. HTLD’s forward P/E was 68.49 according to Yahoo Finance.
A fleet of trucks along a highway, highlighting the logistical network of the trucking company.
Heartland Express (HTLD), a 46-year-old, family-operated trucking business, presents a compelling investment opportunity as the logistics cycle shows signs of reversing. Originally founded by the grandfather and father of current CEO Mike Gerdin, the company went public in the 1990s after an investment banker suggested selling part of the business rather than flipping it. Over the years, Heartland has built a reputation for quality service, notably being FedEx’s Carrier of the Year for the past 18 years. With a fleet boasting an average truck age of just 1.5 years, the company focuses on maintaining modern equipment, which limits its ability to benefit from inflation as a tailwind but ensures high operational efficiency.
Since 2019, Heartland has embarked on a buying spree, acquiring Millis Transfer for $150 million, Smith Transport for $170 million, and the assets of Contract Freighters Inc. (CFI) for $525 million in 2022. These acquisitions elevated Heartland to the 8th largest U.S. trucking fleet, but they also marked the first time the company took on long-term debt. Shareholders were unsettled by this, as debt-fueled rollups have been punished in the current rising interest rate environment. Mike Gerdin, the CEO of Heartland Express, recognizes that integrating acquisitions can be difficult, especially as the company transitions from a strategy of acquiring and selling trucking companies to one where it retains these acquisitions for long-term growth. However, Heartland has already reduced its debt to $232 million and aims to be debt-free within four years, providing a potential catalyst for a stock price recovery. CEO Mike Gerdin, aligned with shareholder interests through his 39% ownership stake, has also hinted at further acquisitions if the right cultural fit emerges, despite paying down debt aggressively.
Heartland’s stock has faced compression since 2014, even during the profitability boost from the COVID-19 era. However, three potential tailwinds could drive a stock price rebound. First, the end of the prolonged destocking cycle, which could reignite demand in the logistics sector. Second, the potential rerating of mid-cap companies, where Heartland may escape the low multiple trap that has affected small caps. Lastly, the repayment of long-term debt could eliminate investor concerns and catalyze a return to historical multiples.
Trading at a depressed price-to-sales ratio of 0.83x, far below its historical 2.5x range, Heartland could see significant upside. A return to peak revenue and prior multiples could push the stock price from its current $11.38 to $38, a potential three-bagger. With acquisitions, improved fundamentals, and a strong capital allocation strategy, Heartland offers a promising medium-to-long-term opportunity.
Heartland Express, Inc. is also not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 11 hedge fund portfolios held HTLD at the end of the second quarter which was 12 in the previous quarter. While we acknowledge the risk and potential of HTLD as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.