Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche


Does Supply Chain make money at Landstar System?

Supply chains, those boring networks of logistics that put stuff on our shelves and porches are all over the news these days. Even the White House staff worries about supply chain problems.

Constantly, many investors wonder if supply chain companies such as Landstar System Inc (NASDAQ: LSTR) make money. Notably, Mr. Market likes Landstar. Landstar’s share price rose from $122.54 on 27 July 2020 to $157 on 30 July 2021. Moreover, Mr. Market paid $180.52 for Landstar on 10 May 2021.

Landstar provides semi-tractors, contracts with major North American railroads, air freight, and sea freight; a complete supply chain.. For instance, Landstar’s North American logistics network includes 1,100 agents, 10,500 leased tractor-trailer owner operators, 17,000 trailers, and 69,000 other providers.

Landstar’s Supply Chain Platform

Worldwide, Landstar offers air freight, international air freight, customs brokerage services, ocean services and project cargo. Thus, Landstar offers one-stop supply chain solutions.

That means Landstar seems designed for a world of just-in-time inventory. Notably, Landstar offers some services designed for just-in-time including Less-than-Truckload-Shipping and expedited and emergency shipping.

I consider Landstar (LSTR) a platform that connects shippers with providers of shipping services. For example, a semi-tractor owner operator seeking work and a company with a cargo to ship. Thus, Landstar sells supply chain services to industry.

Do Supply Chains Make Money?

Consequently, Landstar’s financial numbers could be a good metric for measure for the health of supply chains. If Landstar System (LSTR) makes money supply chains make money.

Landstar seems healthy. Notably, Landstar’s revenues grew by 38.79% in the quarter ending on 31 March 2021 and 20.10% in the quarter ending on 31 March 2020, Stockrow estimates.

Similarly, Landstar’s quarterly revenues grew from $928 million on 31 March 2020 to $1.288 billion on 31 March 2021. In addition, the quarterly gross profit grew from $131 million on 31 March 2020 to $177 million on 31 March 2021. Plus, the quarter operating income grew from $54 million on 31 March 2020 to $103.27 million on 31 March 2021.

So, Landstar is growing and making more money during a global pandemic.

How Much Cash Does Landstar Make?

Conversely, Landstar’s quarterly operating cash flow fell from $99.22 million on 31 March 2020 to $69.89 million on 31 March 2021.

In contrast, the quarterly ending cash flow rose from $177.22 million on 31 March 2020 to $219.39 million on 31 March 2021. Impressively, Landstar did not take on much debt during the pandemic. For example, it reported a quarterly financing cash flow of -$95.77 million on 31 March 2021.

Landstar (LSTR) had $261 million in cash and short-term investments on 31 March 2021. The cash and short-term investments grew from $211 million on 31 March 2020.

Notably, Landstar’s total debt fell from $101.92 million on 31 March 2020 to $91 million on 31 March 2021. Thus, Landstar finished the pandemic with more debt and less cash. However, I think Landstar’s ability to keep cash is small.

What Value does Landstar have?

Landstar System (NASDAQ: LSTR) gained value during the pandemic. For example, the Total Assets grew from $1.236 billion on 31 March 2020 to $1.574 billion on 31 March 2021.

I think Landstar’s value comes from all the transportation resources it provides access to. In particular, the 10,500 leased tractor-trailer owner operators are a valuable resource in an age of trucker shortages.

For example, National Truck Tank Carrier estimates the American trucking industry is short 50,000 drivers. Moreover, the American Trucking Associations estimate the trucker shortage could grow to over 160,000 drivers by 2028. The shortage could grow because the average age of an American truck driver was 55 in 2021, BulkTransporter estimates.

I predict the trucker shortage could create more demand for Landstar’s services and help Landstar make more money. Notably, Landstar’s owner-operators could be more reliable than employee trucker drivers.

A problem today’s trucking company faces it that competitors will be constantly trying to poach their drivers with higher salaries and more perks. However, the owner-operators who are small business people could be more reliable than employees. For example, the owner operator is less likely to switch jobs than an employee who gets an offer of higher pay.

Is Landstar a good stock?

Hence, I think Landstar could retain value but is it a good stock? I say no because I think Mr. Market overvalued Landstar (NASDAQ: LSTR) at $157 on 31 July 2021.

On the other hand, Landstar has a growing dividend. For example, Landstar’s quarterly dividend will grow from 21¢ on 5 May 2021 to 25¢ on 6 August 2021. Overall, Landstar offered an annualized dividend of $1 and a dividend yield of 0.66% on 30 July 2021.

So, yes, Landstar has some appealing characteristics. However, I think Landstar’s shares are too expensive to be a value investment.