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mid-cap

Two Appealing Bets at Current Levels - SNDR, MCFT

Jul 01, 2021 | Team Kalkine
Two Appealing Bets at Current Levels - SNDR, MCFT

Schneider National, Inc.

SNDR Details

Schneider National, Inc. (NYSE: SNDR) is a top transportation and logistics service provider in North America. It provides a broad range of truckload, intermodal, and logistics services and has an operating history of 80 years. The company operates in three segments, viz. 1) Truckload, which provides freight services by company employed drivers through either one-way shipments (Network) and dedicated long-term contracts, 2) Intermodal, consisting of door-to-door container on flat car (COFC) services through a combination of rail and dry transportation, and 3) Logistics, providing freight brokerage services to third party operators.

Zero Full Load Thefts in FY20: On May 19, 2021, SNDR announced that it had achieved zero thefts for cargo in FY20. SNDR moves more than nine million miles of freight every day across North America, considering this reaching zero thefts in FY20 is a major milestone achieved. The transportation provider formerly achieved zero theft load year in FY14.

Innovation in Freight Technology: On March 08, 2021, the transportation provider announced the expansion of the technology lineup of Schneider FreightPower, a digital platform, to help shippers save time and increase their capacity, backed by Schneider’s trusted services. With the help of Schneider FreightPower, the shippers can easily book, track and confirm delivery 24/7.

Diverse End Markets and Customer Base (Source: Investor Presentation, Q1FY21)

Q1FY21 Results: The company reported a 9.78% surge in operating revenue to USD 1,228.60 million in Q1FY21 (ended March 31, 2021) compared to USD 1,119.10 million in Q1FY20. SNDR reported an increase in net income to USD 54.80 million in Q1FY21 vs USD 43.80 million in Q1FY20. As of March 31, 2021, the company stood at the cash and cash equivalents of USD 472.20 million with a total debt of USD 307.90. Total Truckload’s revenue per tractor per week (excluding fuel surcharge) improved by 4.13% to USD 3,706 in Q1FY21 from USD 3,559 in Q1FY20.

Key Risks: SNDR’s Class A common stock has ten votes per share, while Class B common stock has one vote per share. These concentrates voting control with certain members of the Schneider family members who hold 94% of the total voting power (100% of Class A common stock and 42% of Class B common stock). This concentration of voting power limits the ability of other shareholders to influence corporate matters.

Outlook: In FY21, the company expects to spend USD 375 to 425 million in capital expenditures subject to potential Original equipment manufacturer (OEM) supply chain issues. SNDR projects its FY21 adjusted diluted earnings per share to be around USD 1.60 to USD 1.70.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Analysis by Kalkine Group)

  • % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

SNDR Daily Technical Chart

Stock Recommendation: SNDR stock fell 12.65% in the past three months and is currently trading close to the lower-band of the 52-week range of USD 19.96 to USD 27.15. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is 34.58. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 26.62. Considering the company's market dominance in North America, innovation in technology infrastructure, 100% theft-free loads, and increasing free cash flows, we recommend a "Buy" rating on the stock at the current price of USD 21.81, down 0.36% as of June 30, 2021, at 3:13 PM ET.

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

MasterCraft Boat Holdings, Inc.

MCFT Details

MasterCraft Boat Holdings, Inc. (NASDAQ: MCFT) is engaged in designing, manufacturing, and commercializing performance sport boats (PSBs), luxury day boats, and outboard boats to independent dealers. MCFT operates under three segments viz. 1) MasterCraft segment produces boats under two trademarks, MasterCraft and Aviara. These are performance sport boats used for water skiing and leisure boating. Aviara boats are luxury boats. 2) NauticStar segment produces boats at its Amory, Mississippi facility and used for saltwater fishing and leisure boating, and 3) Crest segment produces pontoon boats at its Owosso, Michigan facility and used for general boating activities.

Share Repurchase Program: On June 28, 2021, MCFT announced a new share repurchase program under which the company may repurchase up to USD 50 million of its outstanding common stocks during the next three-year period ending June 24, 2024. The boat manufacturer also announced the closing of a new USD 160 million credit facility, including USD 60 million of term loan and a USD 100 million revolving credit facility, of which USD 33.7 million was withdrawn as of the date of this filing.

Robust 9MFY21 Results: The boat manufacturer reported an uptick of 18.68% in net sales to USD 370.27 million during 9MFY21 (ended April 04, 2021) compared to USD 311.97 million during 9MFY20 (ended March 29, 2020), primarily due to an increase in sales volume, lower dealer incentives, high prices of both MasterCraft segment and Crest segment. MCFT recorded an adjusted EBITDA of USD 65.79 million during 9MFY21 compared to USD 43.40 million during 9MFY20. The company witnessed a significant increase in net income to USD 39.63 million in 9MFY21 vs the loss incurred of USD 21.21 million in 9MFY20.

Key Risks: The company depends on third-party equipment manufacturers and distributors for certain parts and materials used in the manufacturing process. MCFT purchased all engines for its MasterCraft PSBs under the arrangement with a single vendor during FY20, FY19, and FY18. Total purchases from this single vendor were USD 27.60 million, USD 39.30 million, and USD 34.70 million during FY20, FY19, and FY18, respectively. Undue reliance on the single vendors for business could hurt the company's financial health.

Outlook: For the full year FY21, the company expects net sales to grow by approximately 40% alongside adjusted EBITDA margin to grow by approximately 17% as compared to the previous year. MCFT also projects its adjusted EPS growth to be in the high 120% range.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Analysis by Kalkine Group)

  • % Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

MCFT Daily Technical Chart

Stock Recommendation: MCFT's share price has declined by 5.70% in the past one month and is currently trading in the mid-band of the 52-week range of USD 15.90 to USD 33.63. The stock is currently trading between its 50 and 200 DMA levels, and its RSI Index is 45.35. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 30.78. On the technical chart, the next support level is USD 22.46. Considering the company's prospects for growth, strategic investments, current valuation, and associated risks, we recommend a "Speculative Buy" rating on the stock at the current price of USD 26.18, up by 1.76% as of June 30, 2021, at 2:29 PM ET.

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level.