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small-cap

Speculative Bet on This Small-Cap Trucking Stock – USX

Feb 04, 2022 | Team Kalkine
Speculative Bet on This Small-Cap Trucking Stock – USX

U.S. Xpress Enterprises, Inc.

USX Details

U.S. Xpress Enterprises, Inc. (NYSE: USX) is one of the major asset-based freight carriers in the United States, with a truckload fleet that provides a variety of services. The company manages third-party carriers through its non-asset-based truck brokerage system. Its two operating segments are 1) truckload, which provides transportation services via OTR and dedicated contracts, and 2) brokerage, which generates revenue by brokering freight to third-party operators.

Q3FY21 Results:

  • Double-Digit Growth in Topline: The company reported YoY growth of 13.83% in total operating revenue to USD 491.14 million during Q3FY21 (ended September 30, 2021) from USD 431.47 million in Q3FY20, driven by growth in Fuel Surcharge and Brokerage operating revenue.
  • Decline in Profitability: Net loss attributable to shareholders was USD 5.48 million in Q3FY21, compared to a net income of USD 10.70 million in Q3FY20.
  • Cash and Debt Position: As of September 30, 2021, the company's cash balance stood at USD 6.00 million, with a total debt of USD 364.99 million.

Key Risks:

  • Voting Concentration Risk: Each Class B common stock share in USX has five votes, whereas each Class A common stock share has only one vote. Owners of class B shares belonging to the Fuller and Quinn families (Max Fuller and Patrick Quinn founded the company in 1985) have disproportionate voting power, limiting the ability of other shareholders to influence corporate decisions.

Outlook:

  • Capex Guidance: The company expects to incur USD 130 to 150 million net capital expenditures in FY21.
  • Q4FY21 Guidance: Given the broad economic recovery and tailwinds from the Federal Government's stimulus plan, USX forecasts solid fright demand in Q4FY21. It also forecasts a 2-4% sequential growth in truckload pricing, outpacing inflation.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

 Stock Recommendation:

USX's share price has fallen 60.30% in the past nine months and is currently trading towards the lower-band of its 52-week range of USD 4.13 to USD 12.33. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 5.23.

Considering the significant correction in the stock price in the past nine months, economic recovery and tailwind from the Government’s stimulus plan, favorable truckload pricing, positive outlook, current valuation, and associated risks, we recommend a "Speculative Buy" rating on the stock at the closing price of USD 4.26, down 4.27% as of February 03, 2022.