UPDATE: Wells Fargo Securities Upgrades Heartland Express Following Announcement of Gordon Trucking Acquisition
In a report published Wednesday, Wells Fargo Securities analyst Anthony P. Gallo upgraded the rating on Heartland Express (NASDAQ: HTLD) from Market Perform to Outperform.
In the report, Wells Fargo Securities noted, “We have upgraded the shares of HTLD to Outperform from Market Perform following the announcement of the acquisition of Gordon Trucking, Inc. We think the strong share price reaction to the news was warranted given the earnings addition from Gordon. We have upgraded the shares because we believe this acquisition gives HTLD very good earnings visibility over the next few years. More specifically, we see an acquired entity that is healthy but whose margin profile and cost structure provide fairly low risk opportunities for HTLD to create value over time. Additionally, we think there is appealing revenue potential from the improved geographic coverage and customer expansion opportunities. Lastly, we think the timing is nearly ideal. Prior to the acquisition HTLD had underutilized cash and minimal near-term capital expenditure needs, while Gordon had a somewhat aged fleet. Moreover, industry pricing dynamics are such that top-line growth was expected to remain challenging, whereas the combined entity should find revenue synergies and better lane balance. We have raised our 2014 EPS estimate from $0.87 to $1.02 and tweaked our 2013 estimate lower from $0.84 to $0.83. Our 6-12 month Valuation Range is increased to $20-21 from $14-15. We apply a 20.0-20.5x P/E target multiple based on earnings visibility and giving consideration to peer valuations where we see less growth. We see the biggest risk to our estimates and valuation range in the timing of expense reductions.”
Heartland Express closed on Tuesday at $17.28.
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