Q2/24; REALISTIC OUTLOOK & FOCUS ON MARGIN SHOWS VALUE
THE TD COWEN INSIGHT
Mullen reported Q2/24 EBITDA of $85.7 million vs. TD/cons at $78.7/$79.5 million. Adjusted diluted EPS of $0.34 vs. TD/cons at $0.30/$0.29. We believe results demonstrate management driven margin resilience and M&A related growth potential. We believe the 17% dividend increase (5.8% yield), strong results and historically low valuation should attract both income and value seeking investors.
Impact: POSITIVE
We are increasing our target to $22.00 from $21.00 and maintaining our BUY recommendation. The increase in our target reflects the shift forward in our valuation period by one quarter, higher forecast EBITDA, lower valuation-period net debt due to higher forecast FCF, and lower valuation-period shares outstanding, partially offset by lower forecast adjusted EPS. The bias higher to our adjusted EBITDA forecast reflects the carry forward of a portion of the stronger-than-forecast Q2/24 EBITDA and other minor modelling updates. The bias lower to our adjusted EPS forecast reflects higher ROU and intangibles amortization due to the ContainerWorld acquisition and its exposure to leased real estate.
Mullen generated Q2/24 EBITDA growth of 3% despite a 5% decline in organic revenue. This is a strong result against a backdrop of challenging retail inventory and capital spending trends. Mullen's LTL segment generated a 20% EBITDA margin (up 200 bps y/y) compared to much higher multiple LTL comps (ex-outlier) which are forecast to average 14.7%.
Cost control and M&A-driven lane density improvements should drive 50 bps of margin expansion in 2024. After a challenging start to 2024, L&W reported stronger-than-forecast EBITDA margin. We believe pricing and volume headwinds, and the ContainerWorld acquisition should continue to pressure margins through H2/24. S&I outperformed our expectations and generated a respectable 21.6% EBITDA margin (stronger-than-forecast).
We view management's near-term outlook as substantially unchanged relative to Q1/24 commentary with 2024 EBITDA guidance considered 'achievable'. Management remains cautiously optimistic regarding H2/24, while not assuming meaningful economic growth. Mullen is trading at a historically large discount to its weighted-average comp group (14.1x P/E and 7.3x EV/EBITDA) and below trailing 5-year average P/E and EV/EBITDA multiples. We believe the valuation discount is overly punitive and fails to reflect management's track record, the company's strong b/s, M&A execution/potential, expected return to EPS growth in 2025, and shareholder friendly capital return program.