Hub Purchase Value-Neutral for Shareholders

Narrow-moat intermodal and highway brokerage specialist

Estenson appears to be a well-run, profitable carrier and should uncover plentiful cross-selling opportunities for Hub’s flagship intermodal operations. The firm posted solid 15% top-line growth over the past five years, driven by shippers’ increasing penchant for outsourcing their private fleet operations, and it should see continued double-digit gains over the next few years under Hub’s ownership. That said, the deal incrementally moves Hub into the capital-intensive truckload shipping marketplace, and Estenson will require heavy investment in tractors to support fleet growth. It’s not that we think investing in an asset-based trucker is a bad decision, but it comes down to price. After running the preliminary performance numbers through our model, our initial take is that the deal will prove value-neutral for shareholders, based on the purchase price and assuming most of the firm’s expected revenue and cost synergies are achievable. In our view, this means there’s elevated risk for the transaction to prove modestly dilutive to our fair value estimate when considering the price-competitive nature of truckload shipping (even in the more sticky dedicated-contract niche). Estenson probably won’t enhance Hub’s competitive positioning or economic moat--trucking offers even the best carriers few opportunities to differentiate over the long run.

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