Is SNDR’s value proposition good enough?

 

No matter what the current economic climate is, one of the many questions active investors have to try to answer is what sectors and industries in the market provide the best opportunities. Some industries tend to be cyclical in nature, meaning that their profitability is positively correlated to the ebb and flow of the broad economy, while others tend to be less susceptible to those influences. Those are defensive industries, and when economic conditions are uncertain, or slowing, defensive industries are usually more attractive than cyclicals.

For the stock market, the last year and a half has marked a bit of divergence from that typical model I just described, as investors have been anxious to look past the “pandemic effect” that forced many industries into clear recessionary conditions, and unemployment to spike to historically high levels not seen in decades. That has pushed a lot of industries significantly higher, to levels that a value-oriented analyst like myself can only consider as being overpriced. In cyclical industries like Transportation, those prices controvert the reality of the past year’s financial and economic pressures, making the investing decision harder.

Despite continuing COVID-related concerns from an increasing number of infections and hospitalizations in many parts of the country, many reports are pointing to signs of increasing economic health, such as increasing consumer demand for travel and other socially-oriented activities that have been severely restricted since early 2020. The most recent jobless claims, for example came in just a little above their historical lows before the pandemic arrived in the U.S. That data leads me to believe that investors and analysts who started buying stocks last year at the bottom of the pandemic may have been jumping the gun a bit, but that they may also simply have been on the very early side of the cyclical curve back to growth. That doesn’t mean that continuing health crisis-driven risks don’t remain, nor does it change the valuation argument, or the discipline that is required to filter for stocks that offer useful discounts, but it also suggests that if you can find stocks that still offer reasonable valuations, there are still good opportunities to be had.

Schneider National, Inc. (SNDR) is an interesting stock in the Transportation industry. This is a small-cap company with a focus on the various operations that are specific to trucking services. While railroad transportation for goods across the country is often considered more affordable, it also usually takes longer, which is why rail transportation tends to most often be tied to bulk cargo, hazardous materials, and so on. Trucking supports rail transportation by offloading from a railyard and transporting to a final destination, while also offering a faster cross-country alternative in many cases for less cumbersome loads like consumer goods. Schneider’s balance sheet indicates that it has seen an impact over the past eighteen months from pandemic-driven pressures, but also that it has remained resilient throughout. That includes improving net margins, conservative debt service and excellent liquidity. After driving into an upward trend from January that peaked in May at around $26, the stock has dropped back to consolidate at the low end of its yearly range. Does that pattern mark a good value opportunity to go along with the company’s solid fundamental profile? Let’s find out.

Fundamental and Value Profile

Schneider National, Inc. is a provider of transportation, logistics and related services. The Company’s transportation solutions include one-way, intermodal, dedicated, bulk, transport management, trans loading services, international services and Schneider payment services. Its supply chain management and consulting services include logistics solution design, global supply chain services, enterprise and market entry assistance, and sourcing and compliance. Schneider Logistics is the subsidiary of the Company, which provides supply chain management technology, managed services, engineering services and freight payment. The Company operates approximately 10,000 tractors, around 28,800 trailers and around 14,300 containers. It has operations in around 36 locations in Canada, the United States and Mexico. SNDR has a current market cap of $4.4 billion.

Earnings and Sales Growth: Over the last twelve months, earnings improved by more than 130.7%, while sales grew almost 32%. In the last quarter, earnings increased by more than 93.5% while Revenues were about 10.75% higher. SNDR’s operating profile shows improving profitability, with Net Income versus Revenue over the last year at 5.69%, and strengthened in the last quarter to 7.87%.

Free Cash Flow: On a trailing twelve-month basis, SNDR’s Free Cash Flow was a little over $206.2 million in the last quarter. That is below the $456 million level registered a year ago, as well as below its mark from the last quarter at $297.3 million. The current number translates to a modest Free Cash Flow Yield of 5.26%.

Debt to Equity: SNDR has a debt/equity ratio of .09, which is very conservative. Their balance sheet shows a little over $539.6 million in cash and liquid assets (up from $442.6 million two quarters ago) against $207.1 million in long-term debt (versus $266.4 million two quarters ago). Their operating profile is more than adequate to service their debt, with plenty of liquidity from cash and liquid assets to provide additional flexibility.

Dividend: SNDR pays an annual dividend of $.28 per share, which at its current price translates to a modest yield of 1.27%.

Price/Book Ratio: there are a lot of ways to measure how much a stock should be worth; but I like to work with a combination of Price/Book and Price/Cash Flow analysis. Together, these measurements provide a long-term, fair value target around $25 per share. That suggests that SNDR is modestly undervalued, with about 15% upside from its current price, and a useful discount price at $20 per share. It is also worth noting that at the beginning of the summer, this measurement offered a long-term target price at around $29.

Technical Profile

Here’s a look at the stock’s latest technical chart.

Current Price Action/Trends and Pivots: The chart above displays the last year of price activity for SNDR. The red diagonal line defines the stock’s downward trend from a peak in August of 2020 to a low at around $20. It also provides the baseline for the Fibonacci retracement lines on the right side of the chart. After rallying to about $26 by May, the stock dropped sharply back again into July, and has since begun consolidating between a low point at around $21, which continues to act as current support, and still-immediate resistance at $22.50. A push above $22.50 should see next resistance somewhere between $23.50 and $24, but could push to about $25 if bullish momentum picks up. A drop below $21 could see the stock test its 52-week low price at around $20 per share.

Near-term Keys: SNDR’s balance sheet has remained solid through the past year, which also adds credibility to their value proposition. That could make SNDR an interesting stock to keep track of throughout the year as a potential long-term opportunity. Ironically, the stock’s current price activity doesn’t really show a lot of room between pivot lows or highs that make short-term trading strategies very attractive; however, you could use a push above resistance at $22.50 as a signal to consider buying the stock or working with call options, using $24 to $25 as profit target if bullish strength increases. The stock’s limited downside, however doesn’t really make a short-term bearish trade – by shorting the stock or buying put options – very attractive.

 
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