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Hawk’s Nest

Put Sales See Limited Downside in Small-Cap Logistics Operator

by | Oct 29, 2021

Covenant Logistics (CVLG) strong move recently and basing above monthly value and the 55-EMA this week after pulling back on earnings. CVLG traded 1000 December $30 puts in an opening sale on 10/28 at $2.50, around 300X average volume for the name, and sign of confidence in the recent levels. The $478M company trades 7.67X earnings, 0.5X sales, and 45X FCF with mid-single digit growth. CVLG provides transportation and logistics services through four segments: Expedited, Dedicated, Managed Freight, and Asset-Light Warehousing. The company continues to see strong results due to the overall shipping environment while managed freight saw revenue grow 88% as they build out their customer base, handle more overflow freight and capitalize on pop up capacity opportunities for retail. CVLG continues to partner with shippers to lock in coverage and keep their overall schedule full. They see labor cost headwinds as their biggest hurdle into 2022 but they’ve been successful at passing on costs to customers. Analysts have an average target for shares of $42, although limited coverage. Cowen positive on 9/15 as consensus appears to be underestimating the trucking industry’s pricing power in 2022. The firm expects pricing to be up by a mid-single digit’s percentage and also projects flat fleet growth in 2022 which will help truckload carriers be positioned for higher-than-expected EPS growth next year. Stifel with a Neutral rating for the stock but likes how they have transformed its business from mostly Expedited to more diversified. Hedge fund ownership fell 8.5% last quarter. Insiders have been active in the name and may target the stock after the recent dip.