Description

I like Expeditor's International (EXPD), the freight forwarder logistics company.

Some small background -

I have been on VIC for a while.  I have posted a number of ideas, and one of the last times I tried to repost a previous idea my reposting was disallowed.  This was Big Lots which I posted in 2009 but several years later apparently a repost of BIG was not permitted.  I don't understand this but am grateful for VIC having this site and obviously must follow their rules.  But when you follow about 100 ideas and a decent amount are 'taken', it is hard to come up with something absolutely wonderful for this site, especially in a market that has been very happy for going on 7 years now.  

So - this is a long winded way of suggesting that if you have very detailed questions about this specific business model then I am not your man.  Course, I'm not sure I'd be your guy for that in many other ideas I've posted, but they have done ok.   Plus, with EXPD, as most of you know they post very detailed notes about their business model and current conditions that you should read yourself rather than have me repeat here.  In fact, any question you can come up with it going to be in their answer sections, and the last few have been very detailed IMO. But I would suggest you download the PDFs on their site, combine them together, and use that as your research sources. 

So my writeup focuses on my reasons for liking this stock and reasons to not own this stock.

Positives

1.  Great BS.  Clearly overcapitalized.   Some would suggest ridiculously overcapitalized in this new investment world which often views cash as a disease to be quickly exterminated.  EXPD views on cash are listed in their questions for 02-27-15 number 13.  

http://investor.expeditors.com/pdf/fd/8-k_05-18-15_1.pdf

2.  Rising Dividend.  Currently at 72c.  Was 3c in 1999, 11c in 2005, 40c in 2010, and now 72c.  Payout ratio is roughly 33%.

3.  Buys Shares.  Company purchased 551m, 262 and 302 in past three years.   

4.  Company has committed to using its FCF for "lion's share" of dividends and buybacks.  NI + DA is roughly 450m with planned CapEx of 85m.  Dividend is 115m.  So buyback and dividend ought to be roughly 365m at least or 4.1% shareholder return.   A lower price for the stock is actually a benefit.  

5.  Projected growth rates are close to double digit.  VL is at 8% top line and 9.5% bottom line.  EXPD long-term EPS growth targets are 10 to 15%.  Margins have relatively stable for many years.  Even during the end of world (2008 to Q1 2009) EXPD margins and profits barely budged though sales fell sharply for a single year.   They did have a bump in 2012 but this didn't last.  

6.   Stock Price has stagnated for years.  As you likely know, EXPD was a cult stock for many years - 20% ROEs, fast grower top lines, rising margins, famous in your face management with everybody's favorite CEO (Peter Rose).  VL shows that the average PE ratio reached 41.5x and all-time high of $58.30.   Here were are 10 years later and the price is well below this level.  The TTM PE 22x and this gives no account for the BS.   An above average business now trades for a more reasonable price.   

Negatives

1.  Company does issue fair share of options.  Table listed below.   Figure 3m issued each year.

2.  Hiccups in 2012 show that the business is not immune to bad news.   Ignoring end of the world, 2012 was an off year as airfreight suffered a substantial decline.   At the time, this was blamed on lower size and weight of tech products and better supply chain efficiency.  This could happen again.  Port strikes can lead to higher airfreight, and this makes for tougher compares.  For a long-term investor, these are buying opportunities, and I for one can't predict them.

3.   Near term compares get progressively harder next few quarters.   EXPD business has been accelerating on several measures and these will make for more difficult compares rest of 2015.  Many estimates for 2016 are muted:  VL for one projects only 5% top line and just 7% EPS growth.  I have no other analyst access.   I still think these are overly modest.   

4.  Stock is not 'cheap' and won't appeal to anyone who wants stuff to happen.   At least by traditional measures - this is not an 18% FCF yielder of the type you could find just a few years ago.   It isn't a company that is going to excite with acquistions.  They don't even sound overly enthused by their buyback plan regardless of their intent to continue it.  The most exciting thing lately has been a nebulous "strategic assessment' which has been ongoing (see question 8) and obscure.  But business has been improving, so maybe something is going on.  Not sure.

Conclusion

I think this is a very well run high ROE overcapitalized well-managed company trading at a fair valuation and suitable for long-term ownership.   I think the company can sustain its current multiple and grow by amount of EPS increases.  I own this stock. 

Catalyst

TIME (no immediate catalyst)