2 weeks Ago
thitivong In 2023, I started covering companies in the freight and logistics industry, and I have continued expanding my coverage in that area. With this report, I will be adding another name to my coverage, namely Radiant Logistics ( NYSE: RLGT ). Since this is my first report on the company, I will be discussing the companies activities followed by a discussion of earnings, key risks and opportunities as well as a stock price target and rating.
Radiant Logistics: A Non-Asset Based Multi-Modal Service Provider Radiant Logistics Radiant Logistics describes itself as a multi-modal 3PL service provider. In essence, this means that the company offers freight forwarding and brokerage services for various modes of transportation such as air, sea and road as well as intermodal. 3PL means that the company uses third-party to provide the logistics service.
In essence, Radiant Logistics does not provide the logistics but connects the client with the logistics provider. 77% of the revenues is derived from freight forwarding split 70-30 between domestic and international, while 11% of the revenues are derived from brokerage services with the remaining 12% for value added solutions with mostly comes from materials management and distribution. Radiant Logistics Radiant Logistics has a big network in the US, Canada and East Asia that provides the freight services.
It does so via a network of company-owned stations as well as partner companies. What I like about Radiant Logistics is that they also have exposure to Monterrey in Mexico, which offers nearshoring opportunities . Radiant Logistics The company has seen remarkable growth — growing revenues from $25 million in 2006 to more than 100 agent stations and company-owned locations with a revenue of more than $800 million, with adjusted EBITDA growth exceeding revenue growth.
Flexible Cost Model Can’t Prevent Operating Loss Radiant Logistics Third quarter revenues decreased from $244.7 million to $184.6 million or a 24.
4% decrease to revenues, which reflects the overcapacity in the market and the macroeconomic pressures. The cost of transportation declined by 25.8% as a function of these factors and the same holds for operating partner commissions which declined 24.
2%. Personnel costs remained stable while SGA decreased nearly 6% and depreciation and amortization was stable, leading to a 22% decline in operating expenses. Operating income declined from $6.
2 million to a $0.9 million loss, indicating a margin contraction from 2.6% to -0.
5%. On an adjusted EBITDA basis, the profits fell from $11.6 million to $6.
4 million, or a 55% decrease. In some way, as revenues tank, it is good to see that Radiant Logistics is able to flex things down. Conversely, this means that as revenues grow the major cost components also increase and that means that on total operating costs it is hard to amortize costs.
What you are left with is a relatively low margin business. What Are The Risks And Opportunities For Radiant Logistics? The obvious risk is the macroeconomic environment that drives the revenues for Radiant Logistics. The major cost components are variable, but there seems to be limited ways to take out the cost of the business apart from the volume components.
Even in times of high demand, the margins are thin. So, that means that on GAAP-basis with severe downturns in demand for freight services or an overcapacity on the market, there will be margin erosion to the extent that the company can become loss making. The opportunities for Radiant Logistics are obviously a stabilization in the demand-supply environment, but also include M&A activity to increase market share and as much as possible to amortize costs.
That has worked well for Radiant Logistics as it grew with EBITDA growth outpacing sales growth. Furthermore, it can convert some agent stations into company-owned stations, which could be beneficial to margins. Radiant Logistics Stock Offers Upside The Aerospace Forum To determine multi-year price targets The Aerospace Forum has developed a stock screener which uses a combination of analyst consensus on EBITDA, cash flows and the most recent balance sheet data.
Each quarter, we revisit those assumptions and the stock price targets accordingly. In a separate blog I have detailed our analysis methodology . If you are buying Radiant Logistics stocks, you are definitely not buying against a discount on 2024 earnings.
However, at this point, I believe that looking towards 2025 would not be premature as the company’s financial year ends on June 30 th . With that in mind, I do believe that there is 33% to 41% upside with a price target of $8.37 based on peer group valuation and $8.
85 on company median valuation. Wall Street analysts have a consensus price target of $9.17 for Radiant Logistics, providing 46% upside.
Currently, we have no FY26 estimates available to model out the FY26 price target, but if CAGR EBITDA rates are any positive indicator for FY26, there could be even more upside. Conclusion: Radiant Logistics Is Compelling But With Risk I believe that Radiant Logistics has a cost structure that is not necessarily the most compelling one. Major parts of the cost structure are variable, which is beneficial during times of demand pressure, but in times of higher demand, I also believe those cost items will grow in line with revenue growth.
Furthermore, the margin seems to be thin, even in times of high demand. So, this is definitely a challenging business. Perhaps that helps the company stay ahead of the competition and engage in an appealing M&A growth strategy.
From a valuation perspective, I do believe that while the risks are clear, there also is an upside to the stock price as we should see a more stabilized environment in FY25. As a result, I am initiating coverage for Radiant Logistics with a buy rating. If you want full access to all our reports, data and investing ideas, join The Aerospace Forum , the #1 aerospace, defense and airline investment research service on Seeking Alpha, with access to evoX Data Analytics, our in-house developed data analytics platform.
Dhierin-Perkash Bechai is an aerospace, defense and airline analyst. The Aerospace Forum Learn more Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions.
I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results.
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