A fleet of trucks on a highway, transporting goods for the company.
Radiant Logistics Inc (NYSE American: RLGT), founded in 2005 by Bohn Crain, is a third-party logistics company offering tech-enabled transportation and value-added services in the US, Canada, and worldwide via wholly owned operations and partners. Around 80% of RLGT’s business is freight forwarding, with the rest comprised of value-added offerings like consulting and truck brokerage, which are asset-light business segments with minimal capital expense. While value-added services account for 5% of RLGT’s revenue, the company’s core competency remains domestic air transport of goods requiring special handling, like transporting vaccines, aircraft parts, or food to hotel chains. The company’s domestic air competency has safeguarded it from the wild price changes observed on other transportation modes, especially ocean freight, in the new decade. RLGT stock price has remained muted in the past seven years despite doubling mid-cycle earnings and transforming its balance sheet to $33 million of net cash from $60 million in debt and preferred stock. Here, we summarized a May bullish thesis published by xds68 on Value Investors Club.
The thesis highlighted that RLGT’s earnings could be bottoming out amid the prolonged freight recession, and the stock remains a value buy. The stock price could finally start moving upward as the effect of the freight recession since the pandemic continues to fade. RLGT is also positioned to bring in almost $20 million in FCF against an enterprise value of more than $200 million, with mid-cycle FCF expected to be above $30 million. Moreover, management could complement revenues via share buybacks and acquisitions, potentially via network consolidation of franchise partners. The bullish thesis also highlighted that RLGT could become an acquisition target for a bigger logistics firm. Third-party logistics operations are founded on trust and mutual understanding, and logistics partners are available 24/7 to arrange high-priority transports. Hence, providers are price competitive and mostly price takers based on freight rates, creating considerable revenue and earnings cyclicality. Meanwhile, RLGT’s profitability and cash-generation potential improved on the back of a strong balance sheet in each cycle since its currently depressed operating revenues are almost at the same levels as before 2020.
Moreover, 50% of RLGT’s fulfilment is via partners, most of whom have been operating for decades and are nearing retirement. RLGT leverages its expertise in the logistics sector and its complete visibility into business operations and customers to generally acquire partners for a single-digit multiple of EBITDA, representing mid-teens ROI due to the low capital needs post-acquisition. Furthermore, RLGT’s partner acquisitions reduce “partner commissions” costs, whereas SG&A increases by a lesser amount. Moving forward, Radiant may consolidate several locations to trim operating costs further. Elsewhere, there are signs of reversal in the years-long slump in mergers and acquisitions, as RLGT completed three takeovers last year and boosted partner agreements and internal company expansion. At this pace of acquisitions, the logistics firm could improve inorganic growth for several years. There is also scope for RLGT to complement this potential growth opportunity with frequent non-partner acquisitions to enhance its footprint in diverse regions and add more core competencies. The thesis estimates company liquidity of $80 million, which would support nearly $15 million in further acquired EBITDA. This would drive RLGT to inorganically grow FCF to $30 million, placing the price to FCF in the single digits at a cyclical trough. While RLGT is not currently exploring options for its buyout, it could become a target for private equity or mid-cap freight firms like ArcBest, Maersk, and Expeditors. Despite several missteps, like overpaying for the truck brokerage Wheels, the expensive integration of SAP EM, and cyber incidents, management’s execution in recent years has been relatively steady.
RLGT is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 13 hedge fund portfolios held RLGT at the end of the first quarter compared to 11 in the previous quarter. While we acknowledge the potential of RLGT as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as RLGT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: This article was originally published at Insider Monkey.