Roadrunner Keeps on Trucking

07/16/2013 6:00 am EST


Tom Bishop

Founder, BI Research

Don’t let buying near an all-time high turn you away from the shares of Roadrunner Transportation Systems; what counts is its valuation and growth prospects, says small-cap specialist Tom Bishop of BI Research.

Roadrunner is a trucking company that does not own its own trucks. Instead it utilizes 3,300 independent contractors (ICs), triple the number four years ago.

This company just does everything smarter and more efficiently. Indeed, the stock price attests to this quality company’s success and growth prospects.

ICs are individuals or small teams that own or lease their own trucks and provide dedicated capacity to Roadrunner. And they are an industry leader in driver retention, important in a tight market where the average driver is 56.

In addition, when it is not economic to use its own ICs (Roadrunner is very clever in that regard), it utilizes any of 9,000+ third-party trucking companies from JB Hunt on down.

RoadrunnerTransportation Systems (RRTS) offers a full spectrum of services including its Less-than-Truckload (LTL) service, its Truckload and Logistics (TL) segment, and its smaller Transportation Management Solutions division, which offers a “one- stop” transportation and logistics solution.

Its customized TMS offering is designed to allow customers to reduce operating costs, redirect resources to core competencies, improve supply chain efficiency, and enhance customer service. In short, small companies can outsource every aspect of their trucking function to Roadrunner.

Because they don’t own their trucks (though there are 3,300 dedicated to Roadrunner), the company has a strong variable cost business model that provides very strong free cash flow and a high return on invested capital.

The company has about 250 sales people, serving about 35,000 customers that they do business with. And they are now cross selling Roadrunner’s various services to every one of them.

The enticing thing about this is that only 10% of its customers use more than one of Roadrunner’s services. So there is a lot of room for organic growth here.

Since 2009, Roadrunner has been growing at about 30% and historically this has been about 20% growth from acquisitions and 10% from organic growth, plus or minus.

The company made eight acquisitions in 2012 and 14 in the past two years and all must be immediately accretive. In that regard the company reports that its acquisition pipeline remains robust.

Not only has Roadrunner grown the most rapidly in its industry over the past three years, but IBD also currently gives it the highest composite rating in the industry (92) as well. So the past and future look good. I own these shares, and recommend them for purchase.

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