Our view: MTL reported another strong quarter, and we see the performance as especially impressive given the weak industrial backdrop, with many peers flagging a deteriorating outlook. Key is that Mullen's strong performance and resiliency YTD (we expect the company to outperform its guidance set in December) is not reflected in the company's valuation, with the shares yielding >10% on 2024E FCF. We see this valuation as very attractive while the freight market remains under pressure - and see Mullen as well positioned to drive solid growth when the freight cycle inflects. Reiterate Outperform and price target remains at $17.
Key points:
Q3 results above. MTL reported adjusted EBITDA of $95MM, above consensus $90MM (RBCe: $89MM). As shown in Exhibit 1, margins were the main driver of the beat, at 17.9% above our 17.0% on effective cost control. Revenue of $532MM came in above consensus $524MM (RBCe: $523MM). Overall, a very solid quarter, with the margin beat providing a nice setup for when volumes recover.
Outlook in line with cautious commentary from peers. On the call management acknowledged that demand has stabilized across most verticals, but that pricing remains a challenge due to intense competition. They foresee this as a structural issue within the industry that will require time for correction as companies shift from aggressive market share tactics to pricing for profitability. Mullen however has navigated this backdrop effectively in our view by maintaining cost discipline, which has driven solid margin performance, in addition to pursuing strategic acquisitions, which has supported growth this year and which we continue to see as an important catalyst for the shares looking ahead.
Valuation least expensive amongst all the transports in our coverage.
Mullen shares trade at a >10% FCF yield, which represents close to the company's most discounted valuation in the last 10-years (excluding the initial COVID related market sell-off). Moreover, it is our view that street expectations already reflect current truckload weakness. We view the stock trading on trough estimates and on trough valuation - and therefore see a very attractive investment opportunity at current levels.
Adjusting estimates. We raise our 2024 EBITDA estimate to $335MM (from $330MM), on the back of Q3 results. We maintain our 2025 EBITDA estimate of $351MM and our 2026E of $358MM.
Our view. Despite the impressive 8% spike today, MTL shares are still trading at 6.6x EV/EBITDA (NTM), which we view as very attractive given the company's resiliency in a tough market. We reiterate (again) the value opportunity we see in MTL shares today.