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CEO Of Heartland Express Makes A Large Purchase – Insider Weekends

  • September 10, 2023

Key Insights

  • Heartland Express (HTLD) is a full truckload freight and trucking company that specializes in the short to medium haul market
  • The company has made a series of acquisitions over the past few years, with the last one being the $525 million acquisition of Contract Freighters in August 2022
  • While the acquisitions have led to extremely high levels of growth for Heartland Express, the balance sheet ended up with a lot of debt. The company now has a P/E of over 30 and an EV/EBITDA of less than 6.
  • Heartland Express is attractive due to its growth, but for all other metrics, we vastly prefer another trucking company, Old Dominion Freight Line, which we wrote about in our September Monthly Newsletter

In our September Monthly Newsletter, we did a deeper dive into the trucking company Old Dominion Freight Line (ODFL) following a series of buybacks by the company. We were especially impressed by the quality of the experienced leadership team as well as the bid Old Dominion had put in for one of its largest competitors, Yellow, which recently declared bankruptcy. While Old Dominion was an attractive opportunity, the one drawback lay in the current state of the trucking and freight industry. We discussed the drawback and wrote the following last month:

The Logistics Managers Survey is a monthly study aimed at revealing the status of US logistics activity. The Logistics Manager’s Index (LMI) score is a combination of eight unique components that make up the logistics industry. The components include: inventory levels, inventory costs, warehousing capacity, warehousing utilization, warehousing prices, overall transportation capacity, transportation capacity utilization and transportation prices. The LMI is calculated using a diffusion index, in which any reading above 50 percent indicates that logistics is expanding; a reading below 50 percent is indicative of a shrinking logistics industry.

Logistics Manager Index on the Decline
Decline of the Logistics Manager Index Over the Past Few Months

Unfortunately, the LMI experienced a sixth consecutive monthly decline, reaching a record low of 45.4 in July 2023, signaling another contraction in the logistics sector, primarily driven by a decline in inventories. Inventory levels have been steadily decreasing, with a reading of 42.9, the second-lowest ever recorded. Additionally, the growth in inventory costs also showed a decline at a reading of 57.1. Furthermore, transportation utilization and transportation prices are contracting, although at reduced rates, with readings of 46.8 and 32.8, respectively. Despite the current downturn, survey respondents remain optimistic about the future, predicting an expansion rate of 55.4 over the next 12 months, reflecting the strength we are seeing in the economy from Q1 and Q2 2023 GDP numbers.

Given this decline in the logistics industry as a whole, we didn’t expect to see much interesting activity in the trucking/freight sector over the next few months. Yet this week, the CEO of trucking company Heartland Express Inc. (HTLD) purchased over $1.63 million worth of stock – a year after the company acquired the trucking company Contract Freighters Inc. for $525 million.

Heartland Express was founded in 1978 in Iowa, and has been publicly traded since 1986. The company has grown massively – partly through acquisitions like the one of Contract Freighters in August 2022 and Smith Transport in May 2022. Heartland Express primarily operates full truckload carriers (as opposed to Old Dominion’s less-than-truckload business model) and about 99.9% of operating revenue was derived from shipments within the United States.

Through the Contract Freighters acquisition, Heartland Express began operations in Mexico and increased their consolidated average length of haul to roughly 500 miles. Since Heartland Express primarily serves the short-to-medium haul market, they have the advantage of usually only needing a single driver (as opposed to a team of drivers) and a single trip without extraneous stops. However, as Heartland Express admits in their 2022 10-K filing, the trucking industry is undergoing a qualified driver shortage – the increased freight demand during the COVID-19 pandemic made finding drivers very difficult to begin with, and that seems to have continued on into 2023.

What initially drew us to Heartland Express was that trailing twelve month revenue growth was nearly 100% but we were taken aback by how much the net income and net income margin dropped over the last few months, especially before learning about the Contract Freighters acquisition. This was reflected in Inside Arbitrage’s graph of certain balance sheet items over the last few quarters. The sudden drop in net cash quickly led us to correctly assume that there was an acquisition that took place.

Balance Sheet Graph for Heartland Express, Shows How Net Cash Suddenly Dropped
Sudden drop in net cash for Heartland Expression right after their acquisition of Contract Freighters

Looking at recent financial results, in fiscal 2022 (ended on December 31, 2022), the operating revenue for Heartland Express was $968 million, compared to $607 million the year prior. Net income for the year also increased to $133.6 million, although the operating ratio did drop slightly to 80.5% (operating ratio for the company is measured as operating expenses as a percentage of operating revenues).

Given that trucking and freight in general is a very cyclical industry that experienced a sudden boost during the COVID-19 pandemic, the first half of 2022 was a strong time for Heartland Express, but freight demand began to decline in the second half of 2022. This seems to have continued on in 2023, and the company has also been impacted heavily by fluctuation in fuel prices. By March 2022, the Department of Energy’s average fuel prices increased to over $5.00 per gallon and continued to stay elevated for a long period. More recently, fuel prices have dropped and now hover at around $3.88 a gallon. Despite these factors impacting Heartland Express, revenue grew to $306 million in Q2 2023, when compared to the $187 million in Q2 2022. In the first half of 2023, operating revenue was $637.1 million and net income was $20.4 million, compared to an operating revenue of $339.1 million and net income $93.7 million compared to the first half of 2022. Heartland Express attributes the drop in net income to a $73.2 million gain on a single terminal location in 2022 which did not repeat in the three months ended June 30, 2023.

In general, the sudden growth in Heartland Express is appealing – especially considering the current market for trucking and freight has been on the decline. With fuel prices largely settling and the qualified truck driver shortage abating, conditions seem more favorable for Heartland Express. While both Heartland Express and Old Dominion deal in the trucking and freight industry and look promising, Heartland Express is far smaller and also deals with a different type of shipping – and thus, exposure to both companies wouldn’t necessarily be redundant. It’s been a year since the Contract Freighters acquisition and the results are clearly seen in the revenue growth over the last few quarters – with the caveat that net cash has taken a large hit and the company has taken on a fair amount of debt. For the time being though, we’ll hold off from investing in Heartland Express until the balance sheet, as well as the net income, settle further.

Welcome to edition 698 of Insider Weekends. Insider buying declined last week with insiders purchasing $34.62 million of stock compared to $60.86 million in the week prior. Selling increased to $1.05 billion compared to $909.97 million in the week prior.

Sell/Buy Ratio: The insider Sell/Buy ratio is calculated by dividing the total insider sales in a given week by the total insider purchases that week. The adjusted ratio for last week went up to 30.37. In other words, insiders sold more than 30 times as much stock as they purchased. This week, the Sell/Buy ratio was unfavorable, compared to the prior week when the ratio stood at 14.95.

Notable Insider Buys:

1. Broadcom Inc. (AVGO): $857.55

Director Check Kian Low acquired 11,000 shares of this semiconductor company, paying $872.03 per share for a total amount of $9.59 million. Mr. Low increased his stake by 222.18% to 15,951 shares with this purchase.

You can view the list of recent insider transactions for Broadcom Inc. here.

P/E: 26.4Forward P/E: 18.74Industry P/E: 25.21
P/S: 9.98Price/Book: 16.04EV/EBITDA: 18.74
Market Cap: $353.94BAvg. Daily Volume: 2,591,56652 Week Range: $415.07 – $923.67

2. Heartland Express, Inc. (HTLD): $15.18

Chief Executive Officer Michael J. Gerdin acquired 109,418 shares of this trucking company, paying $14.86 per share for a total amount of $1.63 million. These shares were purchased indirectly through trust.

You can view the list of recent insider transactions for Heartland Express, Inc. here.

P/E: 19.97Forward P/E: 17.65Industry P/E: 19.35
P/S: 0.95Price/Book: 1.37EV/EBITDA: 5.81
Market Cap: $1.2BAvg. Daily Volume: 242,68352 Week Range: $13.43 – $18.17

3. Energy Transfer LP (ET): $13.76

Co-CEO Marshall S. McCrea acquired 100,000 shares of this energy-related services provider, paying $13.72 per share for a total amount of $1.37 million. Mr. McCrea increased his stake by 1.50% to 6,769,267 shares with this purchase.

You can view the list of recent insider transactions for Energy Transfer LP here.

P/E: 11.47Forward P/E: 9.36Industry P/E: 8.80
P/S: 0.54Price/Book: 1.57EV/EBITDA: 8.76
Market Cap: $43.25BAvg. Daily Volume: 11,141,99552 Week Range: $10.02 – $13.85

4. Axalta Coating Systems Ltd. (AXTA): $27

Director Kevin M. Stein acquired 36,600 shares of this specialty chemicals company, paying $27.38 per share for a total amount of $1 million. These shares were purchased indirectly through trust.

You can view the list of recent insider transactions for Axalta Coating Systems Ltd. here.

P/E: 26.47Forward P/E: 15Industry P/E: 14.07
P/S: 1.18Price/Book: 3.64EV/EBITDA: 11.28
Market Cap: $5.99BAvg. Daily Volume: 2,209,54052 Week Range: $20.66 – $33.68

5. Grindr Inc. (GRND): $5.88

Director George Raymond Zage acquired 100,000 shares of this dating app, paying $5.17 per share for a total amount of $517,350. Mr. Zage increased his stake by 1.83% to 5,560,000 shares with this purchase.

You can view the list of recent insider transactions for Grindr Inc. here.

P/E: N/AForward P/E: N/AIndustry P/E: 16.45
P/S: 4.6Price/Book: 49.41EV/EBITDA: 17.71
Market Cap: $1.02BAvg. Daily Volume: 387,58052 Week Range: $4.49 – $71.51

You can view the full list of purchases from this Insider Buying page.

Notable Insider Sales:

1. Green Brick Partners, Inc. (GRBK): $45.61

Director David Einhorn sold 850,000 shares of this homebuilding and land development company for $45.63, generating $38.79 million from the sale. These shares were sold indirectly by Greenlight Capital, Inc.

You can view the list of recent insider transactions for Green Brick Partners, Inc. here.

P/E: 7.92Forward P/E: 6.76Industry P/E: 16.10
P/S: 1.18Price/Book: 1.84EV/EBITDA: 6.93
Market Cap: $2.07BAvg. Daily Volume: 420,95152 Week Range: $19.52 – $59.3

2. Microsoft Corporation (MSFT): $334.27

Shares of Microsoft were sold by 2 insiders:

  • Chief Executive Officer Satya Nadella sold 38,234 shares for $328.43, generating $12.56 million from the sale.
  • EVP, Human Resources Kathleen T. Hogan sold 26,815 shares for $327.37, generating $8.78 million from the sale.

You can view the list of recent insider transactions for Microsoft Corporation here.

P/E: 34.57Forward P/E: 26.49Industry P/E: 25.21
P/S: 11.72Price/Book: 12.05EV/EBITDA: 24.03
Market Cap: $2.48TAvg. Daily Volume: 25,836,95052 Week Range: $213.43 – $366.78

3. Ares Management Corporation (ARES): $105.96

Co-Founder David B. Kaplan sold 200,000 shares of this asset management company for $103.46, generating $20.69 million from the sale. These shares were sold indirectly by Trently Holdings, LLC.

You can view the list of recent insider transactions for Ares Management Corporation here.

P/E: 63.83Forward P/E: 20.9Industry P/E: 9.29
P/S: 8.85Price/Book: 11.18EV/EBITDA: 29.15
Market Cap: $32.27BAvg. Daily Volume: 957,14152 Week Range: $58.6 – $106.02

4. Salesforce, Inc. (CRM): $224.76

Shares of this CRM technology provider were sold by 4 insiders:

  • Chair and CEO Marc Benioff sold 60,000 shares for $220.88, generating $13.25 million from the sale.
  • President and CFO Amy E. Weaver sold 16,275 shares for $222.76, generating $3.63 million from the sale. These shares were sold as a result of exercising options immediately prior to the sale.
  • Pres/Chief Engineering Officer Srinivas Tallapragada sold 10,000 shares for $220.14, generating $2.2 million from the sale. These shares were sold as a result of exercising options immediately prior to the sale.
  • Co-Founder and CTO Parker Harris sold 1,250 shares for $219.33, generating $274,163 from the sale. These shares were sold as a result of exercising options immediately prior to the sale.

You can view the list of recent insider transactions for Salesforce, Inc. here.

P/E: 140.48Forward P/E: 23.99Industry P/E: 25.21
P/S: 6.61Price/Book: 3.77EV/EBITDA: 28.3
Market Cap: $218.69BAvg. Daily Volume: 5,795,55352 Week Range: $126.34 – $238.22

5. Atlassian Corporation (TEAM): $206.6

Shares of this software application company were sold by 3 insiders:

  • Co-CEO, Co-Founder Michael Cannon-Brookes sold 24,723 shares for $205.74, generating $5.09 million from the sale. These shares were sold indirectly by a trust.
  • Chief Revenue Officer Cameron Deatsch sold 3,411 shares for $205.83, generating $702,081 from the sale.

You can view the list of recent insider transactions for Atlassian Corporation here.

P/E: -108.74Forward P/E: 71.74Industry P/E: 25.21
P/S: 15.04Price/Book: 81.27EV/EBITDA: -279.06
Market Cap: $53.17BAvg. Daily Volume: 1,568,05952 Week Range: $113.855 – $264.97

You can view the full list of sales from this Insider Sales page.

The list of all insider purchases and sales by management people is only available to InsideArbitrage Premium and Plus members.

Disclaimer:  I hold a long position in Atlassian (TEAM). Please do your own due diligence before buying or selling any securities mentioned in this article. We do not warrant the completeness or accuracy of the content or data provided in this article.