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Wabash National: From 'Near Death' to Top Small-Cap Stock

It has been an especially good year for investors in Wabash National Corp. (WNC), the second-best-performing stock in the Russell 2000 index of small-cap stocks in 2010. Year to date through Aug. 18, the stock has almost quadrupled, vs. the index's return of 0.42 percent.

A year ago the nation's only publicly traded manufacturer of semi-truck trailers was grasping for survival.

"It had a near-death experience," says Kristine Kubacki, a St. Louis-based equity analyst at Avondale Partners.

With 2009 trailer sales down nearly 80 percent from the industry's last peak in 2006, Wabash faced a debt crisis that threatened it with bankruptcy. In March 2009, the Lafayette (Ind.)-based company said it was unable to file its 10-K form for 2008 on time because it was "assessing its financial position and liquidity requirements in light of recent and ongoing economic conditions that have negatively impacted … operating results"; on Apr. 1, 2009, it received notice of default under its revolving credit facility.

In an Apr. 30, 2009, interview with Bloomberg News, Mark Weber, the company's chief financial officer, said that factors behind the company's default included its failure to file its 10-K annual report by a Mar. 31 deadline and an audited opinion that included a statement about Wabash's ability to continue as a going concern. The company entered into a forbearance agreement over the credit line with its bank group on Apr. 30.

The shares fell to an all-time low of 53 cents on July 16, 2009, from nearly $10 one year earlier.

Lincolnshire Rescue

The sales slump "was unprecedented," Weber told In 2008, Wabash's sales were already dropping during a downturn in the highly cyclical trucking industry. But then the financial crisis hit in September and exacerbated the decline.

"They got hit with the proverbial perfect storm," says Michael Lyons, senior managing director of investment firm Lincolnshire Management. Unit sales of trailers went from 60,000 in 2006 to fewer than 13,000 in 2009. Nonrefrigerated trailers called dry vans make up the vast majority of Wabash's sales. In 2009, that market had its worst sales year since 1963, says Kenny Vieth, a partner and analyst at Columbus (Ind.)-based Americas Commercial Transportation Research.

A $35 million investment from New York-based Lincolnshire in August 2009, in preferred stock and warrants to acquire up to 44 percent of the outstanding shares, kept the company afloat.

Lincolnshire had previously owned a flatbed trailer company, according to Lyons, so the firm was familiar with Wabash and the industry. Lincolnshire knew Wabash's sales would recover; "it was just a question of timing," says Lyons, who is a director of Wabash.

That timing was close to perfect. The capital injection from Lincolnshire staved off bankruptcy for Wabash, and the shares began to climb. In May, a public offering of newly issued common stock—with proceeds used to retire debt and preferred stock—and shares sold on behalf of Lincolnshire on partial exercise of its warrants netted the investment firm more than $100 million. Lincolnshire retains warrants to acquire about a 14 percent interest in Wabash.

Recovery Boost

The recovering economy has also helped Wabash. The company posted an EBITDA (earnings before interest, taxes, depreciation, and amortization) loss of $500,000 in the second quarter, compared with a $6 million loss in the first quarter and a $10 million loss a year earlier. Sales climbed to about $150 million, nearly twice as much as the preceding quarter and a 74 percent rise from a year earlier. New trailer unit orders in the second quarter were 5,400, in line with company guidance. Richard Giromini, president and chief executive officer of Wabash, noted that in the last quarter the company added more than 700 temporary workers in response to improved sales but persisting concern over the recovery's strength. Since then it's added another 600, says Weber.

The company should have positive EBITDA in the third quarter, for the first time in eight quarters, says Weber.

For investors like Lincolnshire who bought at the bottom of the cycle, the returns were huge. But there is still room for growth for Wabash and the rest of the transportation industry, according to equity analysts who follow the stock. Kubacki upgraded the stock to buy from hold this spring, noting the company has restructured during the downturn and is nowhere near a peak in its typical two- to four-year cycle. Four of five analysts who follow the company have rated the stock a buy, according to Bloomberg data. A fifth analyst has the company's rating under review.

Sales Outlook

Vieth expects 85,000 to 90,000 dry-van units to be sold next year industrywide, a more than 50 percent increase over this year's forecast and a more than 180 percent increase from 2009 sales. And Wabash just increased its expectations for units sold in 2010 from a range of 18,000 to 22,000 to a range of 23,000 to 25,000.

"To the extent you think the U.S. economy is going to grow, you need more trucks, you need more trailers," says Vieth.

That may present a challenge to Wabash, as any significant softening in the recovery could hinder the company's return to profitability. Economists surveyed by Bloomberg expect second-quarter U.S. gross domestic product to be revised to 1.4 percent on Aug. 27 from the preliminary figure of 2.4 percent, vs. a gain of 3.7 percent in the first quarter; forecasts call for growth of 2.5 percent in the third quarter and 2.6 percent in the fourth.

But analysts remain positive. "There's a long way to go" with the stock, says Jeff Kauffman, an analyst at Sterne Agee Group in New York. Kauffman predicts the stock could still triple in value from its current $7.47 price over the next two to three years.

Prentice is a contributing reporter for Bloomberg Businessweek.

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