Hub Group (HUBG) intriguing small-cap trading up near new highs yesterday and buyers active in the February $60 calls 1500X here for $2.65 to $2.75 over 5X all of open interest. HUBG is a $2B supply chain solutions company with both transportation and logistics management services. On the former, they offer intermodal, trucker brokerage, and asset trucking solutions; the latter including consolidation and International Freight. The majority of their revenue comes from intermodal at 59% — second largest behind JB Hunt (JBHT) — which has remained strong into year-end. HUBG has a wide range of end-users including CPG, automotive, paper and packaging companies, chemicals, building materials, and healthcare. Retail/e-commerce is their biggest industry at 44% of all revenue.

They have been expanding their product reach in recent years into new areas like last mile through their deal for NonstopDelivery while also adding warehousing services with CaseStack. The former deal adds to their e-commerce exposure with a business that saw 40% growth in 2020 despite the overall headwinds from the pandemic. NSD adds end-to-end solutions and strengthens HUBG’s position in a fast-growing but fragmented space. Their CFO noted in December that heavy delivery is a big market opportunity for them – a $30B to $40B TAM that’s highly fragmented — and NSD has been a top-tier carrier in the segment. And, as many of their existing customers are focused on building out their home delivery networks they expect to win more business in 2021 with organic growth in the double-digits.

Wells Fargo initiated coverage on HUB in September calling the company, “a solid franchise that exhibits strong characteristics, ability for further productivity improvements, and an improved foundation for future growth.” They think HUBG’s focus on operational improvements within intermodal will pay off long-term while concerns overgrowth in volumes have been overblown. Further, they think the focus on improving costs will drive growth too. “Roughly 58% of the drayage needs were supplied by HUBG in 2019. Its goal is to increase that level to 80% by investing in tractors and drivers while serving to drive not only better operating performance but increased reliability, key to increased growth and share gains, in our view.”