A leading market position can have advantages, like pricing power. It can also catch the eye of a larger rival, turning a company into a takeover target, notes Richard Moroney, editor of Upside, a specialty advisory service focused on small and mid-cap stocks.
Although the revenue generated from holding a leading market position is desirable, investors want to see companies leverage their leading positions into attractive returns.
With that in mind, we always consider a company’s returns on assets (ROA), equity (ROE), and investment (ROI), as well as its profit margins. We not only examine the absolute levels of these metrics, but also their trends. Here are four market leaders, each involved in various aspects of transportation.
AMERCO (UHAL) says the rental-truck industry includes competitors several times larger than its U-Haul self-moving businesses. Still, U-Haul boasts about 350,000 trucks, trailers, and towing devices connected by a broad geographic network that lets customers pick up equipment in one location and drop off in another — presenting a big advantage over smaller rivals.
AMERCO has a massive footprint in the self-storage industry, operating 1,784 locations that cover 705 million square feet of rentable space. AMERCO claims to be North America’s largest seller and installer of hitches and towing systems.
It also operates one of the biggest propane-refilling networks in North America, with more than 1,200 locations. That scale has helped boost AMERCO’s operating efficiency, with returns on assets tripling in the past year. AMERCO is a Buy.
With a fleet of more than 20 containerships and barges, Matson (MATX) is a leading provider of ocean transportation and logistics for Hawaii, Alaska, Japan, and several Pacific islands. It also offers expedited services from China to California.
Matson is the largest ocean-cargo carrier between the U.S West Coast and Hawaii. Additionally, the company has just one major competitor in Hawaii, Alaska, and Japan. The market for its China services is more crowded.
Returns on assets, equity, and inventory have more than tripled in the past year. All three metrics now rank in the top 15% of S&P 1500 transportation stocks. Matson’s operating profit margin rose to 27% in the June quarter, up from 15% in the year-ago quarter. Matson is rated Best Buy.
Patrick Industries (PATK) produces countertops, cabinets, and other building-materials products for recreational vehicles (56% of annual sales), mobile homes (17%), and boats (14%). The remaining sales come from the housing (8%) and industrials (5%) markets. RV and boat makers are reporting record backlogs, while housing demand also remains robust.
Within the boating market, a roster of highly engineered and specialty products gives Patrick Industries a competitive advantage over other suppliers.
A broad product portfolio has led RV makers to rely on Patrick Industries for a high degree of content. By leveraging production capabilities from its boating and RV businesses, Patrick has become a low-cost supplier of multiple products in the mobile-home market.
In the September quarter, Patrick generated per share earnings of $2.45, up 51%. Revenue also increased 51% to $1.06 billion. The consensus called for per share earnings of $2.03 and sales of $963 million. The stock is a Best Buy.
A specialty manufacturer of recreational and commercial vehicles, Shyft (SHYF) is seeing strong demand as the coronavirus pandemic accelerated the shift toward online commerce.
Shyft makes walk-in vans, truck bodies, and specialty vehicles used by delivery services, retailers, utilities, and companies in the linen, food, and beverage markets. Amazon.com accounted for 29% of Shyft’s revenue last year.
U.S. package volumes are projected to grow at a 7% to 10% pace over the ext four years. Shyft said in September it expects its operating profits to climb at an annualized rate of 26% through 2025 on annual sales growth of 17%. Management sees operating profit margin reaching 15.0% in 2025 from its 2021 target of 11.4%. Shyft is a Buy.
