Quality Distribution, Inc. (NASDAQ:QLTY) has been quite a volatile stock. Its stock price plunged from nearly $13.80 per share in March 2012 to nearly $5.30 per share in November 2012, and it bounced back strongly to more than $9.10 per share. Barron’s thinks positively of the stock, believing that the company’s earnings would be improved in the near future. Let’s take a closer look to see whether or not we should invest in the company at its current price.
Largest tank-truck network in North America
Quality Distribution, Inc. (NASDAQ:QLTY) has the biggest tank truck network in North America, providing logistics and transportation chemicals services to large corporations in the U.S. It has three main business segments: Chemical Logistics, Energy Logistics and Intermodal. Most of its revenue, $596.5 million, or 70.8% of the total revenue, was generated from the Chemical Logistic segment. The Intermodal segment ranked second, with $130.6 million in operating revenue, while the Energy Logistics segment contributed the least, with $115 million in sales in 2012. The for-hire chemical and food grade bulk transport market is quite fragmented, and Quality Distribution is the North American leader with around 15% market share. The company has quite a diverse customer base, as no single customer represented more than 10% of its total revenue.
Weak balance sheet with negative equity
What might make value investors stay away is its weak balance sheet. As of March 2013, it had negative equity of $(11) million, only around $1 million in cash and as much as $400 million in long-term debt. Moreover, Quality Distribution, Inc. (NASDAQ:QLTY)recorded a high level of goodwill and intangibles of $141 million. Thus, its tangible book value was much lower, at $(152) million. In the past five years, the earnings have been quite sluggish, fluctuating in the range of $(181) million to $50 million. Barron’s mentioned that its acquisition in the past two years, including $110 million for the truck logistics services business that mainly serves the fracking industry. The recent sluggishness in the gas drilling market has impacted Quality Distribution negatively. However, the company has transformed itself by utilizing its truck/equipment more efficiently.
Is Quality Distribution cheap now?
At $9.10 per share, Quality Distribution, Inc. (NASDAQ:QLTY) is worth $242.5 million on the market. The market values the company at around 8.6 times EV/EBITDA. Compared to its peers Celadon Group, Inc. (NYSE:CGI) and J.B. Hunt Transport Services, Inc. (NASDAQ:JBHT), its EV multiple is in the middle of the road. Celadon is trading at around $19.50 per share, with a total market cap of $445.30 million. It seems to be the cheapest valued among the three, at only 6.6 times EV/EBITDA. The company has been expanding its business internationally via acquisitions. Recently, Celadon Trucking Services, a Celadon subsidiary, acquired the Canadian truckload carrier, Hyndman Transport Limited, which owned around 175 tractors and has had around $48 million in revenue. President and CEO Paul Will said,
We believe this acquisition offers solid potential to expand our domestic Canada footprint and advance our overall growth plans by delivering growth in our dry van, cross border transportation service offering.
JB Hunt Transport Services seems to be the most expensive of the trio. At $73.40 per share, JB Hunt is worth around $8.7 billion on the market. The market values JB Hunt quite expensively at around 12 times EV/EBITDA. Wal-Mart Stores, Inc. (NYSE:WMT), the famous low cost retailer, likes JB Hunt services a lot. A year ago, JB Hunt was chosen to be Wal-Mart Intermodal Carrier of the Year.
Investors might like JB Hunt the most with its consistent increasing dividends since 2004. Its dividend increased from $0.05 per share in 2004 to $0.71 per share in 2012. It pays the highest dividend yield among the three. However, the dividend yield is quite small, at only 0.8%. Celadon ranked second with 0.4% dividend yield, while Quality Distribution doesn’t pay any dividend yet.
My Foolish take
With the largest truck network in North America, Quality Distribution, Inc. (NASDAQ:QLTY) seems to enjoy the economy of scales in its operations. Barron’s thought that it was cheap, at only 6.4 times 2014 estimated EBITDA with a juicy 18% free cash flow yield. However, its share price performance could experience significant upside only if it reduces the debt level, which could drive its earnings upward in the near future. I would rather wait for better fundamental performance before initiating a long position in this stock.
Anh HOANG has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
The article Is This Chemical Transportation Business a Good Purchase? originally appeared on Fool.com.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
