Today’s Buy Opportunity: Landstar

Welcome to "11 O'Clock Stock." Here at Fool.com, we'll be finding a new great stock at 11 a.m. ET every weekday for 50 days. Better yet, we're so confident in the picks that we're investing $50,000 of the Fool's own money in them! To hear more about the series, click here to see a video from Motley Fool co-founder Tom Gardner. Can't make it at 11 a.m. ET? Come back to Fool.com, and we'll have the article in our Top Stories section 24 hours a day.

As a youngin’, I used to wash my parents' minivan to earn money for baseball cards. Every time I climbed the ladder to wash the roof, I'd give thanks that they didn’t drive an 18-wheeler. It shouldn’t come as a surprise, then, that my favorite trucking company doesn’t actually own any trucks.

Hey, no trucks, no washing! Landstar System (Nasdaq: LSTR  ) takes this mantra a step further: no trucks, low invested capital, low maintenance expenditures, no washing … you get the idea. With a wonderful business model, a truckload of growth prospects, and a price cheap enough to leave change for more trading cards, you should move Landstar out of your blind spot and into your portfolio.

Fast facts on Landstar

Market Capitalization

$1,883.3 million

Industry

Trucking

Revenue (TTM)

$2,239.4 million

Earnings (TTM)

$80.3 million

Source: Capital IQ, a division of Standard & Poor’s. TTM is trailing 12 months.

Where are the assets?
Landstar’s dirty little secret is that it's a technology company masquerading as a stodgy trucking company, just like eBay is a technology company in retailer’s clothing. Both are simply electronic marketplaces that broker transactions for buyers and sellers, making money by taking a small fraction out of each.

But while eBay is the sultan of superfluous swag, Landstar is the king of crated cargo. The company matches up loads of cargo that need to be delivered with truckers looking for work. No trucks -- just a massive computer network that brings together these otherwise distant parties and maximizes their ability to make money.

Our slice of cargo pie
Here’s how the typical transaction goes down:

  1. Agents, acting as independent contractors, find cargo and upload its information (size, weight, destination) into Landstar's online system.
  2. Truck drivers log on to the system and find a load that matches their capacity constraints and optimizes their delivery pattern.
  3. The truck driver picks up the cargo and brings it to its destination.
  4. Everyone (the agent, the trucker, and Landstar) gets paid.

The hard-working truck driver commands the lion's share of each transaction. After all, they’ve done the heavy lifting and deserve 75% of the bounty. The remaining quarter is split between the agent and Landstar.

This arrangement means that Landstar's gross margins are relatively fixed at 17%. With extremely low fixed costs, it can maintain profitability even in the bottom of an economic cycle, and reinvest profits at high returns on capital.

While traditional trucking companies are forced to spend heavily on maintaining their trucks, Landstar simply spends to update its network interface and keep its valuable agents happy. Check out the disparity in returns on invested capital for companies in the trucking sector:

Company

2006 %

2007 %

2008 %

2009 %

TTM %

Arkansas Best (Nasdaq: ABFS  )

12.9

8.2

4.4

(10.7)

(10.2)

Heartland Express (Nasdaq: HTLD  )

14.2

15.0

15.7

10.2

10.2

J.B. Hunt Transport (Nasdaq: JBHT  )

22.2

19.5

18.7

13.6

15.7

Old Dominion Freight Line (Nasdaq: ODFL  )

14.0

11.2

10.3

5.1

6.7

YRC Worldwide (Nasdaq: YRCW  )

10.2

4.2

(1.6)

(34.5)

(17.4)

Landstar System

28.5

30.3

29.5

17.8

20.3

Source: Capital IQ, a division of Standard & Poor’s. TTM is trailing 12 months.

Size matters
Landstar would never be able to get away with siphoning off 17% of the revenue if it weren’t adding significant value for both the agents and truckers. Continuing to do so is the key to the company’s success, and the best way to measure that is by seeing if its network is growing and strengthening.

Over the past decade, Landstar has expanded its network of sales agents to be the largest of any non-asset-based transportation company. With nearly 1,400 agents spread across North America, this army of money-hungry agents seeks out loads that need to be delivered and keeps the Landstar network populated with work for truckers.

On the other side of the network, Landstar has exclusive relationships with 8,500 truckers, and non-exclusive relationships with 24,000 more across the continent. Suffice it to say, delivery capacity is not a problem.

Don’t tailgate the U.S. economy
Landstar’s business can’t help but ebb and flow along with the health of the U.S. economy. But the top brass down in Jacksonville isn’t just idling in park. Last year the company made its first two acquisitions to branch out its services into complete Web-based supply chain management. Now loaded with trucking, rail, air, ocean, and warehousing services, Landstar is driving down the path to be a logistics solution company instead of remaining just a middleman.

The company should continue to grow its core business even while it cuts its teeth in supply chain management. More than $350 billion is spent annually on for-hire intercity trucking, but only 10%-15% currently goes through brokers like Landstar.

While success in its latest venture is far from guaranteed -- there are many large, well-heeled players in the supply chain space -- Landstar shares are priced such that we get any success from this business for free. Furthermore, any upside from a recovering domestic economy or continued shift into brokered trucking could send Landstar’s shares into overdrive.

Previous 11 O'Clock Stock recommendations:

Come back to Fool.com tomorrow for another great stock pick. There's plenty more great stock advice, and you can find video of each day's recommendation as well! To see the performance of previous recommendations, click here.

The Motley Fool will wait at least 24 hours after this publication before buying shares of Landstar. To see an FAQ on the "11 O'Clock Stock," click here.

Neither Bryan nor The Motley Fool owns shares of any company mentioned. The Motley Fool keeps on truckin' with its disclosure policy.


Read/Post Comments (3) | Recommend This Article (38)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 15, 2010, at 11:12 AM, TMF42 wrote:

    Hey Fools!

    Feel free to post any questions you might have. I'll be monitoring your comments all day.

    Bryan

    TMF42

  • Report this Comment On September 15, 2010, at 12:21 PM, Jzgoalman wrote:

    Only been on motley fool about a week, but I love it. However landstar does sound like a great company, but little commentary on the stock. Remember company success doesn't always equate on the market kids. lol

  • Report this Comment On September 15, 2010, at 12:53 PM, TMF42 wrote:

    Jzqoalman:

    Great to have you in the Fool community!

    Personally, I believe that a company with great business fundamentals will eventually be rewareded with great stock performance. And we can improve our odds with this by only paying fair prices.

    As Buffett says, in the long run the market is, in fact, a weighing machine, but its short-term behavior is much more like a voting machine.

    With Landstar, we're in luck. It has been a great long term performer and seems pretty cheap at these levels. Check out its share price relative to the S&P over the past decade:

    http://caps.fool.com/Ticker/LSTR/Chart.aspx?source=icasittab...

    A clear winner. I think there is still room to run.

    Bryan

    TMF42

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1301106, ~/Articles/ArticleHandler.aspx, 8/28/2014 7:12:53 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement