Despite red ink at Heartland, Morgan Stanley report relatively upbeat

“It is encouraging to see Heartland outline fleet size and cost actions following 7 quarters without an operating profit,” Morgan Stanley wrote. 

But the analysis also questioned whether such a decision should have been made earlier. “The decision to rightsize the fleet begs the question of whether this may be a little too late, as we suspect the second half to likely see a strong rebound as a 1H drawdown of inventory leads to a back half restock,” Morgan Stanley wrote. 

Optimism assumes a tariff ‘resolution’

However, the “caveat” to that statement, the analyst team wrote, is assuming a “favorable tariff resolution and no material step back from the consumer.” Morgan Stanley used a recently popular term to describe the phenomenon of a sudden disappearance of imported freight from China due to tariffs: the “air pocket,” in which supply suddenly plunges. “We hope that 1Q becomes the inflection point; however, a 2Q air pocket presents some further risk of deterioration,” it wrote.

If that air pocket is limited and there is a restocking-driven trucking market, Morgan Stanley sees an opportunity for Heartland, “depending on how well [it] is able to capture the cyclical upside as it materializes.”

That situation creates the possibility of “cyclical torque” at a level greater than usual for Heartland, Morgan Stanley wrote, with the “current starting point and cost actions acting as a coiled spring.”

Even though the equal weight rating wasn’t changed, Morgan Stanley did reduce its earnings forecast for Heartland. The new per-share forecast over the next three years is minus 12 cents in 2025, 59 cents in 2026 and $1.16 in 2027. The earlier forecast was plus 12 cents per share this year, 78 cents in 2026 and $1.25 in 2027. Its price target remains $12; Heartland closed Tuesday at $8.91.

The diluted loss per share at Heartland last year was 38 cents.

100 basis point OR turnaround?

By 2027, Morgan Stanley is predicting an OR for Heartland of 90.1%. Heartland’s adjusted OR in 2024 was 101.7%. A year earlier, it was 95.4%.  

In spelling out its “thesis” as to why Heartland is considered equal weight, Morgan Stanley said the market already has priced in the company’s cyclical risks as well as what it called its “idiosyncratic risks.”

“Heartland has historically been defensive in cycle downturns and the stock has been countercyclical since 2014, both of which should hold it in good stead,” Morgan Stanley wrote. It also said any risks to the financial impact from a decline in used truck pricing is “more than priced in and risk-reward looks balanced here.”

That price target is the base case. Morgan Stanley said the bear case for the stock would be $6, if a “recession outweighs restock.”” A bull case of $17 would be if “macro growth accelerates.”

A request for comment left by FreightWaves to Heartland had not been responded to by publication time. 

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