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U.S. Xpress: A Busted IPO With Plenty of Upside

You aren’t going to find dirt cheap stocks being discussed on the financial networks.

That’s because everyone is already following the companies that the “talking heads” are covering.

If you want to find some real bargains, you have to head to the places where few other investors are looking.

One such place is the arena of the “Busted IPO” — where stocks that have been publicly traded for 6 to 24 months now trade well under their IPO (initial public offering) price.

Not all Busted IPOs are jewels, but if you look hard enough you can certainly find some that are.

Why?

There are a few factors that can cause the share price of an IPO to get forced down into bargain territory fairly quickly.

Those include:

  1. The analyst hype job that accompanied the IPO process has blown over and interest in the stock wanes
  1. The lock-up period for shareholders who brought the company public expires and they are allowed to start unloading shares which pressures the share price
  1. As a new IPO, the company hasn’t filed any annual financial statements and therefore has yet to hit the stock screens of institutional traders who bring significant buying horsepower

I’m telling you all of this because I have found a bargain in the Busted IPO bin.

Let me tell you about it before the rest of the market starts catching onto the story.

U.S. Xpress — A Deep Value Busted IPO

Founded in 1986 by Max Fuller, Chattanooga Tennessee based U.S. Xpress (USX) is the fifth largest trucking company in the United States.

This business generates annual revenue of $1.8 billion by focusing its 6,800 tractors and 16,000 trailers on the eastern half of the country.

Today, the original founder, Max Fuller, remains Executive Chairman of the company and his son, Eric Fuller, has assumed the mantle of CEO. Together, the father and son duo currently own almost 12 million shares of U.S. Xpress, which are worth over $70 million.

That means that the interests of top management are very much aligned with shareholders of the company. I like that.

U.S. Xpress has a customer base that is focused on a core blue chip group of customers, where eight of the top ten of which have been using the company for 15 years or more.

Blue Chip Customer Base

In 2007, the Fuller-led management group took the company private. Last May, U.S. Xpress returned to the public sphere through an IPO at $16 per share.

From the IPO in May through the end of September, the company’s share price hovered around the IPO price. Then everything went wrong all at once.

First, due to a temporary service issue with a customer, the company narrowly missed its quarterly earnings estimates which put pressure on the stock.

Then, during the last quarter of 2018 the entire stock market collapsed.

As a cyclical company with no loyal shareholder base (as a newly public company), U.S. Xpress shares dropped all the way to $5 late last year. Now with nobody looking at the company those shares have yet to bounce back.

And that is why we have our Busted IPO opportunity.

One smart fund investor believes that U.S. Xpress will conservatively earn $2 per share in 2020.[1] Other large trucking companies trade in a range of 12 to 16 times earnings.

At 12 times that $2 per share of earnings, U.S. Xpress would trade for $24 per share.

At 16 times that $2 per share of earnings, U.S. Xpress would trade for $32 per share.

The current trading price for the company is under $6 — so there is plenty of upside.

Another way to think of this valuation for U.S. Xpress is the fact that Swift Transportation (which was viewed as a below average operator), was acquired at 8 times EBITDA.

Even at this 8 times EBITDA valuation, U.S. Xpress would trade for $18 per share — a triple from where the company currently trades.

When you are a Busted IPO, nobody loves you. U.S. Xpress’ current valuation confirms that fact.

But that’s good for those of us who like buying stocks that are trading at a fraction of their true intrinsic value.

Here’s to looking through the windshield,

Jody Chudley

Financial Analyst, The Daily Edge
EdgeFeedback@StPaulResearch.com

1 Choice Equities Capital Management 1Q19 Letter: Long Rubicon Project, Inc, ValueWalk

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Jody Chudley

Jody Chudley is a contributing analyst to Lifetime Income Report and Contract Income Alert. Jody is a qualified accountant with a degree in Finance from Brandon University. After spending fifteen years in various finance and planning roles with an international financial institution, Jody set out to manage his portfolio on a full-time basis.

His background...

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