For the long haul.
While the immediate focus on Wall Street has been whether individual businesses can survive COVID-19, the tide will turn eventually, in our view, and companies that are well suited to thrive in the aftermath of the pandemic will then take center stage. In that context, we view Heartland Express, Inc. (HTLD), a best-in-breed truckload carrier, as a unique opportunity that has the balance sheet to endure the current slowdown and a competitive advantage to help it excel during an eventual rebound.
Due to the vital role trucking plays in delivering food and supplies, the industry has been able to mitigate some of the softness caused by the recent dramatic economic slowdown. The ability to continue to generate revenue during the current crisis should allow Heartland to maintain its strong balance sheet, without tapping into its net cash position.
We believe when the economic recovery comes, Heartland, which has one of the youngest fleets of rigs in the industry, will be better positioned to gain market share while weaker competitors are forced either to make do with older, less reliable trucks or take on additional debt to replace them.
Despite Heartland’s position as an industry leader, enviable balance sheet and long-term growth prospects, the company’s shares trade at just 6x earnings before interest, taxes, depreciation and amortization.
The economic disruption caused by COVID-19 as well as the size and scope of the response by global governments is unprecedented. While stimulus packages out of Washington D.C. will provide life support for some of the weakest corporate players, we believe it won’t be enough to stave off the inevitable fate for poorly run companies with excess debt and undifferentiated business models.
As such, we remain focused on businesses that are poised to be disrupters in their fields and that have strong cash flows and a history of prudent capital allocation.
Outlook and Positioning
As stimulus funds begin to hit the domestic economy, we expect a sugar rush of spending that should boost gross domestic product for a quarter or two. However, the heightened regulatory oversight that will be attached to money earmarked for the commercial economy is likely to have a lasting impact on businesses forced to accept Federal dollars.
As such, we believe investors who show a willingness to overlook idiosyncratic challenges do so at their own peril.
Thank you for the opportunity to manage your capital.