Quantitative Factors on ExpressJet

Profitability

ExpressJet’s profit margin is at 8%, slightly above the industry average of 6%. The company operated at a net loss during the late 1990’s, but from 2000 it began turning a profit, peaking at 8% in 2004. For the past 3 years, XJT’s profit margins have been approximately 6%. ExpressJet did not report any one-time extraordinary losses or gains going back to 1998.  XJT announced one share buyback in 2005, auguring well for the company’s future prospects.

Assets and Liability

XJT’s assets to liability ratio is 2.6 to one, having risen from one to one in 2003. In other words, XJT has enough liquidity to cover short-term debt (its interest coverage ratio is 20x).  As explained in previous articles, increasing inventory is a negative sign, because it implies a rising backlog of goods and failure to meet sales expectations. By reducing inventory, restricting cash and other prepayments from short term assets, and dividing this value by short-term liabilities we arrive at the “quick ratio” or the “acid test ratio” of 2.22. Historically, this value grew proportionately to the current ratio, meaning that inventories and restricted cash did not change much. The similarity in size between the quick ratio and current ratio makes sense for an airline service provider such as ExpressJet. This is because the company provides a service and does not sell goods. The inventories largely consist of spare mechanical parts (parts inventory is typically very high for airplane manufacturers but low for airlines.)

ExpressJet’s debt to equity ratio is 50%. It was much higher in 2002 at 2202% as the industry suffered a massive contraction in the wake of 9/11, but it has since plummeted. ExpressJet’s debt to equity ratio is currently one of the lowest in the industry.   

ExpressJet is trading at a price to book ratio of 1.03 and a price to tangible book ratio of 1.1. Both ratios are one of the lowest in the industry. The intangibles asset ratio – (Goodwill +OtherIntangibles)) / Total assets – is only 2%, far below Heisermann’s benchmark of 20%.

Stock based Compensation and Dilution

Pages 66-68 of the 2006 10-K describe stock-based compensation. There is a table on page 68 which distinguishes between “diluted earnings per share” and “pro forma diluted earnings per share.” Diluted earnings per share are derived by converting all convertible bonds into equity. Pro forma diluted earnings per share are derived by deducting stock based compensation from net income, and dividing this value by the diluted earnings per share. This value is $1.59. Diluted earnings per share is $1.65 and regular earnings per share is $1.81.  Stock based compensation as a proportion of net income is 5%, again well below Heisermann’s 15% maximum.  

Revenue Growth

Five-year top-line revenue growth for ExpressJet is 71%, or 14% per year. Net income grew 93% during this period with a growth of 19% per year.

Other Ratios