Insiders Are Selling This Freight Transporter, Should You?

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Insiders sell their company’s stock for a variety of reasons. It may or may not indicate their bearish attitude toward the company. However, investors should be worried when insiders execute large sell orders. Investors need to dig deeper into the fundamentals of the company to determine whether they should follow the insiders and sell, or not. In November, two insiders of Landstar System (NASDAQ: LSTR) including its Chairman, CEO Henry Gerkens, and Lead Independent Director, Diana Murphy, sold ~ $2.7 million. The CEO alone has sold more than 36,000 shares, at the price of around $51.10.

Landstar is in the business of freight transportation and supply chain solutions. The company uses third parties for truck capacity providers, including BCO independent contractors, truck brokerage carriers, ocean and air cargo carriers, etc. The majority of revenue was generated via BCO independent contractors, with $1.37 billion, and truck brokerage carriers, with more than $1 billion in 2011. The good thing is that Landstar has a quite diversified customer base from many industries and regions. In the fiscal 2011, its top 100 customers accounted for around 44% of total sales. 

Looking at historical profitability of Landstar, I was quite impressed with the company’s capability of generating double-digit returns consistently. Since 2002, it has managed to deliver more than a 20% return on invested capital. For the trailing twelve months, the ROIC was as high as 27.15%. It is a low margin business, the net margin has fluctuated in the range of 3.18% to 4.76%, but it has a high return on equity, nearly 40% over the previous 12 months. The high return on equity was due to high asset turnover of 3.29x and good amount of financial leverage, of 2.45x.

Compared to its peers including J.B. Hunt Transport Services (NASDAQ: JBHT) and Swift Transportation (NYSE: SWFT), Landstar seems to be the most balanced choice for investors. 

<table> <tbody> <tr> <td> <p> </p> </td> <td> <p><strong>LSTR</strong></p> </td> <td> <p><strong>JBHT</strong></p> </td> <td> <p><strong>SWFT</strong></p> </td> </tr> <tr> <td> <p><strong>Net margin (%)</strong></p> </td> <td> <p>4.56</p> </td> <td> <p>5.68</p> </td> <td> <p>3.05</p> </td> </tr> <tr> <td> <p><strong>ROIC (%)</strong></p> </td> <td> <p>27.15</p> </td> <td> <p>20.21</p> </td> <td> <p>6.44</p> </td> </tr> <tr> <td> <p><strong>D/E</strong></p> </td> <td> <p>0.3</p> </td> <td> <p>0.7</p> </td> <td> <p>7.6</p> </td> </tr> <tr> <td> <p><strong>P/E</strong></p> </td> <td> <p>18.4</p> </td> <td> <p>24.1</p> </td> <td> <p>12.8</p> </td> </tr> <tr> <td> <p><strong>Dividend yield (%)</strong></p> </td> <td> <p>0.5</p> </td> <td> <p>0.9</p> </td> <td> <p>N/A</p> </td> </tr> </tbody> </table>

Over the previous 12 months, Landstar delivered the highest return on invested capital, and that high ROIC has been consistent in the last 10 years. Its leverage level was the lowest among the three. I do not think Swift Transportation is the company of choice, as it had the lowest return on invested capital, quite high debt level, and does not pay dividends to shareholders. J.B Hunt had the highest net margin, but its ROIC ranks second after Landstar’s. In addition, J.B Hunt is valued the most expensive among the three, with 24.1x P/E. Currently, Landstar is trading at $50.31 per share, with a total market capitalization of $2.34 billion. J.B Hunt is trading at $60.04 per share, with a total market capitalization of $7.10 billion. Swift Transportation is the smallest company among the three, with a market capitalization of $1.33 billion. Its shares are trading at $9.55.

My Foolish Take

Landstar seems to be the best among the three for investors to consider investing in. However, insiders are selling large amount of shares in the market. Furthermore, insiders do not own a large amount of stocks in the company. It is reported that those two selling insiders, the Chairman and CEO is holding 104,451 stocks, and Diana Murphy is holding only 44,726 stocks directly. All key insiders own only 0.76% of total shares outstanding. Those factors make me restrain from investing in this stock now.

 

 

 

 

 

 


hoangquocanh has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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