USA Truck (USAK) investors are buzzing over its pending merger with the German company DB Schenker in a $435 million deal. Management has announced that the company will sell itself to logistics giant DB Schenker for $31.72 per share. The deal will see the company delist from Nasdaq, which means it will go private. As a result, I am bullish.
Investors looking for a merger arbitrage play can find some extra reward in this opportunity. The share price of the company has improved. Still, it trades at a discount versus its buyout level, meaning there’s still some upside left.
The easy money has been made on this one. However, the volatility from the beginning of this year has made things tough for investors, but if you’re patient enough, then maybe you can make some additional returns on this investment.
USA Truck: One of the Best Performers in the Trucking Space
One of the top truckload carriers in North America, USAK is one of the key transport companies across the U.S.
USA Truck is a company that has shown great leadership in the industry’s recovery from the pandemic. It has transformed its vision and aims to be more than just about trucking.
Now it is also focusing on diversifying into other modes like logistics services or intermodal transportation networks to generate even more revenue. The company has found that it can still provide high-demand logistics services by pursuing less-asset-intensive operations. This means there’s more revenue ahead for U.S. Truck.
At the start of the pandemic, it was difficult to say how certain industries might handle it. However, trucking has clearly managed to be one of the sectors that have risen to prominence while others have fallen back.
In addition, the company’s new asset management system should help them to obtain equipment more easily. This means that USA Truck is likely to generate even more revenue in the future as well.
USA Truck is Delivering on Multiple Levels
When it comes to financial soundness, USA Truck is a standout. For the 2021 fiscal year, revenue came in at $710 million. That’s an increase of 28.9%. One significant contributor was trucking, with sales climbing 14.8%. The company saw a decrease in miles overall, but the total base revenue per loaded mile increased by 20.7%.
Its USAT Logistics segment saw its revenue grow 68.5% in just one year to $323.4 million, generating an operating income of $14.7 million. The boom in demand rates has resulted in a significant increase in revenue. The industry is seeing lots of benefits from the expansion as well. Logistical constraints have proven to be beneficial for shareholders.
As revenue increased, so too did profitability. Net income of $24.8 million dwarfed the $4.7 million generated in 2020. EBITDA climbed from $55.7 million in 2020 to $74.8 million in 2021. Though these increases may seem disproportionate to the rise in revenue, this shouldn’t surprise investors of asset-intensive companies. Even a slight improvement in pricing or volume can have a material impact on a firm’s bottom line.
The company has been in business for almost 40 years and has maintained its high service level while keeping overheads low. Today’s markets are unpredictable and volatile. Therefore, keeping your business afloat in this environment can be hard, but prioritizing crucial aspects allows you to perform well on the bottom line.
Clearly, USA Truck has been very successful in this area. Undoubtedly, it is one of the biggest reasons why the company is the target of a buyout.
What Does 2022 Hold for USA Truck?
Massive financial success continued into the 2022 fiscal year. Revenue increased 26.9% during Q1 to $201 million – a considerable feat. Both segments reported year-over-year growth this period in sales, but one segment outperformed all others by far.
USAT Logistics saw a 42.5%, or $29.1 million, jump in revenue to $97.4 million. The revenue per load grew by 14.2%. In addition, profits soared. In the first quarter of 2021, net income was $3.6 million, but this number has more than quadrupled to $13.4 million.
Looking ahead, freight rates are expected to correct by 30-40% in 2022 as they stabilize. However, they will likely remain elevated above 2019 levels due to high demand, staff shortages, and higher fuel costs. Indeed, analysts expect earnings per share in the second quarter to be $0.90, equating to an 80% increase from the comparable period in 2021.
Wall Street’s Take on USAK Stock
USAK has a Moderate Buy consensus rating based on one Buy. Due to the merger, shares have a price target of $31.72, implying 1.41% upside.
Conclusion: Upside is Limited but Volatility May Create Opportunity
USA Truck’s CEO described the impending tie-up as a ‘match made in heaven.’ For shareholders, this deal has been a bonanza and a payday many have been hoping for.
Unfortunately, the short-term gains are few at this point because the upside is limited. It’s worth keeping an eye on this stock, though. The markets are particularly volatile due to supply chain issues, geopolitical tensions, and soaring inflation. You never know when the next opportunity will arise.
