Raymond James Downgrades Heartland Express To Market Perform

In a report published Thursday, Raymond James analysts downgraded the rating on

from Outperform to Market Perform, after the company posted disappointing quarterly results. In the report Raymond James noted, "While Heartland has one of the strongest capital positions in the industry alongside top-tier profitability, the company has had a lackluster track record of earnings performance relative to expectations since the Gordon Trucking acquisition." The analysts expect Heartland Express' earnings growth to continue to lag the rest of the truckload industry through next year. Given the backdrop of a strong truckload environment, the company's earnings momentum appears weak. Heartland Express reported disappointing 1Q15 results, missing consensus expectations for five quarters. The company's 1Q15 EPS was at $0.20, below the estimate and consensus of $0.22. Operating revenues came in at $187.5 million, representing a 16.5 percent decline, and significantly short of expectations. The miss was led by disappointing fuel surcharge revenues. "…the operating ratio improved 590 bp y/y to 84.9%; however, the majority of that improvement came from higher gains on the sale of equipment, $10.2 million (RJE $2.5 million) vs $2.0 million a year ago…We would expect those gains to remain around the 1Q15 levels over the next couple of quarters as the company reduces the average age of its tractor and trailer fleets with new equipment, pushing the older equipment into the attractive used market," the analysts wrote. The EPS estimates for 2015 and 2016 have been reduced from $1.10 to $1.00 and from $1.25 to $1.10, respectively, to reflect "a higher operating ratio excluding gains than originally expected on the lower revenue run rates given the weaker-than-expected trucking revenues and lower fuel surcharge revenues."