Extensive Expansion Will Enable Better Service And Attract New Customers In 2025

Key Takeaways

• Saia's national expansion and strategic investments enhance service efficiency, potentially boosting revenue and net margins.
  
• Focus on staffing, pricing, and operational growth positions Saia for potential long-term earnings growth.
  
• Saia's aggressive expansion and high capital expenditures strain profits and cash flow, with rising operational and risk management costs potentially compressing margins.

Catalysts

Operates as a transportation company in North America.

• Saia's extensive expansion in 2024, including the opening of 21 terminals and the relocation of 9 more, has established a national footprint, enabling the company to better serve existing customers and attract new ones, which could lead to increased revenue.
  
• Investments in over 6,000 new trailers and other equipment are expected to improve service efficiency and provide unique solutions, potentially enhancing net margins and driving future earnings growth.
  
• The onboarding of over 1,300 new employees aligns with Saia's customer-first approach, potentially increasing operational efficiency and supporting future earnings growth as these employees reach full productivity.
  
• Saia's continued focus on pricing and mix optimization, as well as the successful implementation of a significant GRI, suggests potential improvements in revenue and net margins as the company better aligns its rates with the services provided.
  
• The planned capital expenditures for 2025, exceeding $700 million, including further relocations and terminal openings, suggest an ongoing commitment to growth and operational capacity expansion, potentially driving future revenue and earnings growth.

Saia Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Saia's revenue will grow by 7.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 11.3% today to 13.6% in 3 years time.
• Analysts expect earnings to reach $549.0 million (and earnings per share of $20.51) by about April 2028, up from $362.1 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $608.3 million in earnings, and the most bearish expecting $475.9 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 24.8x on those 2028 earnings, up from 24.3x today. This future PE is greater than the current PE for the US Transportation industry at 24.4x.
• Analysts expect the number of shares outstanding to grow by 0.15% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.17%, as per the Simply Wall St company report.

Saia Future Earnings Per Share Growth

Risks

• Saia's aggressive expansion, with the opening of 21 new terminals in 2024, requires significant upfront costs and has been a drag on profits, impacting the operating ratio negatively in the short term. This could affect net margins until these terminals reach full maturity.
  
• The yield per hundredweight, excluding fuel surcharge, decreased by 2.3% due to an increased weight per shipment, indicating that pricing power or mix-management might not be sufficient to offset these costs, potentially impacting revenue.
  
• High levels of capital expenditure, exceeding $1 billion in 2024, have led to a reduction in cash and increased debt, which could pressure earnings if not generating expected returns.
  
• Increased claims and insurance expenses, rising by 16.6% year-over-year, suggest that risk management might be costly, potentially impacting net margins.
  
• Rising salaries, wages, and benefits by 8.7%, due to headcount growth and wage increases, signifies operational cost pressures that could compress earnings if not matched by sufficient revenue growth.

Valuation

• The analysts have a consensus price target of $426.2 for Saia based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $515.0, and the most bearish reporting a price target of just $270.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $4.0 billion, earnings will come to $549.0 million, and it would be trading on a PE ratio of 24.8x, assuming you use a discount rate of 7.2%.
• Given the current share price of $331.28, the analyst price target of $426.2 is 22.3% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.