John Kingston
3 min read
In This Article:
With Heartland Express holding no conference call with analysts and recording a series of unprofitable quarters, outside reviews of the truckload carrier’s performance can be infrequent.
But the transportation team at Morgan Stanley led by Ravi Shanker has done so for Heartland’s first quarter. And despite another quarter of both operating and net losses at Heartland, the Wall Street investment firm, in a report released Tuesday, kept its rating of equal weight – EW – on the truckload carrier’s stock, which is down about 20.5% in the past three months and 22.5% in the past year.
The stability in Morgan Stanley’s outlook was driven in part by statements Heartland CEO Mike Gerdin made in the release of the earnings. Gerdin said Heartland (NASDAQ: HTLD) would “strategically shrink the fleet in order to right size to freight demand along with evaluating all cost measures for opportunity for efficiency.’’
“It is encouraging to see Heartland outline fleet size and cost actions following 7 quarters without an operating profit,” Morgan Stanley wrote.
But the analysis also questioned whether such a decision should have been made earlier. “The decision to rightsize the fleet begs the question of whether this may be a little too late, as we suspect the second half to likely see a strong rebound as a 1H drawdown of inventory leads to a back half restock,” Morgan Stanley wrote.
However, the “caveat” to that statement, the analyst team wrote, is assuming a “favorable tariff resolution and no material step back from the consumer.” Morgan Stanley used a recently popular term to describe the phenomenon of a sudden disappearance of imported freight from China due to tariffs: the “air pocket,” in which supply suddenly plunges. “We hope that 1Q becomes the inflection point; however, a 2Q air pocket presents some further risk of deterioration,” it wrote.
If that air pocket is limited and there is a restocking-driven trucking market, Morgan Stanley sees an opportunity for Heartland, “depending on how well [it] is able to capture the cyclical upside as it materializes.”
That situation creates the possibility of “cyclical torque” at a level greater than usual for Heartland, Morgan Stanley wrote, with the “current starting point and cost actions acting as a coiled spring.”
Even though the equal weight rating wasn’t changed, Morgan Stanley did reduce its earnings forecast for Heartland. The new per-share forecast over the next three years is minus 12 cents in 2025, 59 cents in 2026 and $1.16 in 2027. The earlier forecast was plus 12 cents per share this year, 78 cents in 2026 and $1.25 in 2027. Its price target remains $12; Heartland closed Tuesday at $8.91.
