Wednesday, Credit Suisse initiated coverage of Echo Global Logistics, Inc. (ECHO) stock with an Outperform rating and a price target of $20. The brokerage established its 2009 EPS estimate of $0.18, its 2010 estimate of $0.51, its 2011 estimate of $0.77, and its 2012 estimate of $1.07.
In analyst Ceraso' view, the investment case is relatively straightforward. Echo is a capital-efficient business model with plenty of room to grow in a highly fragmented market that itself grows at about 12% annually. The outsourced third-party logistics market is highly fragmented and growing rapidly, nearly tripling in size to ~$125 billion over the past 10 years.
The analyst said that the freight brokerage model is attractive given its low capital requirements, strong returns, and stable earnings growth across economic cycles. Echo has a significant opportunity to leverage operating expenses. This leverage will turn already robust revenue growth into even faster operating profit growth.
The analyst's 12-month target price for ECHO of $20 per share is based on his discounted cash flow, or DCF, model, which assumes that the company can generate $25 million in EBIT in 2011, or the equivalent of $0.77 in EPS, and that ECHO can grow operating profit at 15.0% annually on a three- to five-year view.
Currently, ECHO is up $0.73 or 5.11% and trading at $15.01.
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