Cliffside Research Releases Short Report On Supreme Industries: Glut Has Caught Up

Supreme Industries, Inc. STS closed down over 23 percent on Friday after a Q3 earnings report that, in spite of a top and bottom line beat, disappointed investors with a 22 percent year-over-year backlog decline.

Also on Friday Cliffside Research initiated coverage of the stock with a Strong Sell rating and $11 price target, which implied a 38.5 percent downside from today’s opening price. Per the research firm, the marked tumble in backlog signals that the “party is over” both for the company and the market of light to medium-duty trucks it serves.

The report continued that earnings seem to have peaked for this cycle. For the ongoing quarter, the firm anticipates a year-over-year decline in earnings and revenue.

“Heavy insider selling in STS is a canary in the coalmine that should not be ignored,” the note said.

Initially, analysts at Cliffside believed Supreme Industries was a short on the back of its “valuation, heavy insider selling, and near peak margins & earnings in the midst of what amounts to the middle of a recession in the rest of the trucking industry.” And, even though the company had escaped said decline, it would catch up with it sooner or later.

Now, it seems like the glut has reached Supreme Industries. “Based on the new backlog data and management’s comments we now believe Q4 earnings will be down [year over year]. We also believe 2017 earnings will likely be flattish vs. 2016 and possibly down. STS was expensive before. Now it looks like valuation is off the charts,” the report concluded.

Disclosure: Javier Hasse holds no interest in any of the securities or entities mentioned above.