Shorting Student Transportation on Its Bearish Undertow


On Friday, our Under the Radar Moversnewsletter suggested shorting small cap school bus transportation services stockStudent Transportation (NASDAQ: STB):

At first glance STB doesn’t look like it’s in all that much trouble. There’s a horizontal support level at $5.39 that’s yet to be broken. Take a closer look though. The 20-day moving average line (blue) has moved below the 200-day moving average line (green) this week, and in the meantime both have become resistance lines.


Given the bearish undertow that’s developed since October, [lower highs, downward sloped moving average lines] we’d rather be a little early than a little late to the party. When-and-if the floor at $5.39 does snap, the selling effort could really heat up.

Our Under the Radar Moversnewsletter would have a more detailed discussion about Student Transportations technical chart along with a shorting strategy:


Founded in 1997, Student Transportation is an industry leader in safety and North America’s largest independent provider of school bus transportation services. STI operates the youngest fleet in the business with more than 13,500 vehicles, providing customers with the highest level of safe and reliable student transportation, management, logistics and technology solutions possible. STI’s services are delivered by drivers, dispatchers, maintenance technicians, terminal managers, information technology professionals and others who are members of their local communities.


In mid February, Student Transportation reported second quarter fiscal 2017 revenue of$177.2 millioncompared to$167.4 million and net income of $6.0 million compared to $5.5 million. The Chairman/CEO made extensive comments, including:

“We continue to be pleased with the steady performance of our operations for the second quarter of fiscal 2017 as well as our year to date results. The positive momentum created by ongoing efforts to increase operational efficiencies and reduce costs will have long term effects on our financial performance. Through the use of new technologies and telematics we are unlocking new key performance indicators that are highlighting areas to further reduce expenses and become even more efficient. We are working with school customers in both our core contracted business and our new Managed Services Group (MSG) to show school officials ways to reduce costs as well which saves them money and improves our bottom line. Fuel costs remain stable with a majority of our fuel exposure mitigated or locked in not only for the remainder of this fiscal year but with a good portion locked in at lower prices for fiscal year 2018. We also have moved almost 30 percent of our contracts to customer paid fuel”


And:

“The first half of fiscal 2017 has been solid with margin improvement and we expect that momentum to hold throughout the remainder of this fiscal year. We did incur winter weather-related school cancellations and additional costs for wages, fuel and snow removal and expect to regain most of that lost revenue in the third or fourth quarters. As reported this past week, we are very pleased to have been awarded a new 10-year contract in Florida with an existing school district customer where we will double the size of our operations there. The new contract calls for an additional 230 new vehicles equipped with GPS, seat belts and air conditioning. The contract will generate in excess of $16 million per year in revenue with fixed price increases and customer reimbursed fuel for nine years. We have served this customer since 2009, and when combined with our existing contract, it will create our new largest customer. Our team is already busy getting ready for a summer startup , which will require additional staffing and facilities.


“We do continue to face headwinds, however, in the form of a continued tightening in the labor market that has created driver shortages in certain markets. These shortages have impacted the entire industry. We have stepped up our recruitment efforts and retention programs which we anticipate will have a positive impact for the balance of the year.

In early February, Student Transportation reportedthat it was awarded a new 10-year contract in Jacksonville, Florida beginning July 1, 2017 with an existing school district customer which will effectively double the size of its operations there making them the Company’s new largest customer. The contract will generate in excess of $16 million per year in revenue with fixed price increases for nine years and also includes “live load” fuel reimbursed by the school district. The Senior Vice President of STI’s Eastern Business Group was quoted as saying:


“We are very pleased to have negotiated and been awarded this contract unanimously by the Board which expands our public-private partnership with Duval County School District that began in 2009. This is a very substantial contract addition for our Company. It demonstrates our ability to provide our services to a vast group of customers from rural communities to regional and major markets. We have a very good team in place already in Jacksonville and this is a great opportunity to expand in what we feel is a vibrant, growing community. Our team is already busy getting ready for a summer start-up that will require recruiting, training, staffing as well as additional facilities. We look forward to providing our exceptional service this fall to our new students and parents within Duval County School District as they become our new largest customer. The new vehicles, added safety measures and on board technology included are a credit to the school administration for their forwa rd-thinking in school transportation.”

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