Covenant Logistics (CVLG)

Freight and logistics provider Covenant Logistics (NASDAQ:CVLG) met Wall Street’s revenue expectations in Q3 CY2025, with sales up 3.1% year on year to $296.9 million. Its non-GAAP profit of $0.44 per share was in line with analysts’ consensus estimates.

Company Overview

Started with 25 trucks and 50 trailers, Covenant Logistics (NASDAQ:CVLG) is a provider of expedited long haul freight services, offering a range of logistics solutions.

The growth of e-commerce and global trade continues to drive demand for shipping services, especially last-mile delivery, presenting opportunities for ground transportation companies. The industry continues to invest in data, analytics, and autonomous fleets to optimize efficiency and find the most cost-effective routes. Despite the essential services this industry provides, ground transportation companies are still at the whim of economic cycles. Consumer spending, for example, can greatly impact the demand for these companies’ offerings while fuel costs can influence profit margins.

Competitors in the transportation and logistics industry include J.B. Hunt (NASDAQ:JBHT), C.H. Robinson (NASDAQ:CHRW), and XPO Logistics (NYSE:XPO).

A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Regrettably, Covenant Logistics’s sales grew at a mediocre 6.3% compounded annual growth rate over the last five years. This was below our standard for the industrials sector and is a poor baseline for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Covenant Logistics’s recent performance shows its demand has slowed as its revenue was flat over the last two years. We also note many other Ground Transportation businesses have faced declining sales because of cyclical headwinds. While Covenant Logistics’s growth wasn’t the best, it did do better than its peers.

We can dig further into the company’s revenue dynamics by analyzing its most important segment, Freight. Over the last two years, Covenant Logistics’s Freight revenue (moving cargo) averaged 2.8% year-on-year growth. This segment has outperformed its total sales during the same period, lifting the company’s performance.

This quarter, Covenant Logistics grew its revenue by 3.1% year on year, and its $296.9 million of revenue was in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 3.5% over the next 12 months. While this projection indicates its newer products and services will catalyze better top-line performance, it is still below average for the sector.

Cost of sales for an industrials business is usually comprised of the direct labor, raw materials, and supplies needed to offer a product or service. These costs can be impacted by inflation and supply chain dynamics.

Covenant Logistics has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 21.1% gross margin over the last five years. That means Covenant Logistics paid its suppliers a lot of money ($78.90 for every $100 in revenue) to run its business.

This quarter, Covenant Logistics’s gross profit margin was 22%, in line with the same quarter last year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Covenant Logistics was profitable over the last five years but held back by its large cost base. Its average operating margin of 5.9% was weak for an industrials business. This result isn’t too surprising given its low gross margin as a starting point.

Analyzing the trend in its profitability, Covenant Logistics’s operating margin decreased by 2.9 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. We’ve noticed many Ground Transportation companies also saw their margins fall (along with revenue, as mentioned above) because the cycle turned in the wrong direction, but Covenant Logistics’s performance was poor no matter how you look at it. It shows that costs were rising and it couldn’t pass them onto its customers.

This quarter, Covenant Logistics generated an operating margin profit margin of 2.7%, down 3 percentage points year on year. Since Covenant Logistics’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, R&D, and administrative overhead increased.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Covenant Logistics’s EPS grew at an astounding 41.5% compounded annual growth rate over the last five years, higher than its 6.3% annualized revenue growth. However, this alone doesn’t tell us much about its business quality because its operating margin didn’t improve.

We can take a deeper look into Covenant Logistics’s earnings to better understand the drivers of its performance. A five-year view shows that Covenant Logistics has repurchased its stock, shrinking its share count by 23.8%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Covenant Logistics, its two-year annual EPS declines of 13.1% mark a reversal from its (seemingly) healthy five-year trend. We hope Covenant Logistics can return to earnings growth in the future.

In Q3, Covenant Logistics reported adjusted EPS of $0.44, down from $0.55 in the same quarter last year. This print was close to analysts’ estimates. Over the next 12 months, Wall Street expects Covenant Logistics’s full-year EPS of $1.70 to grow 20.1%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Covenant Logistics has shown weak cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 4%, subpar for an industrials business.

Taking a step back, we can see that Covenant Logistics’s margin dropped by 12.7 percentage points during that time. This along with its unexciting margin put the company in a tough spot, and shareholders are likely hoping it can reverse course. If the trend continues, it could signal it’s becoming a more capital-intensive business.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Covenant Logistics hasn’t been the highest-quality company lately, it historically found a few growth initiatives that worked. Its five-year average ROIC was 13.6%, higher than most industrials businesses.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Covenant Logistics’s ROIC has decreased significantly over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Covenant Logistics reported $13.06 million of cash and $308.8 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $125.7 million of EBITDA over the last 12 months, we view Covenant Logistics’s 2.4× net-debt-to-EBITDA ratio as safe. We also see its $12.03 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

Revenue and EPS both met Wall Street’s estimates. Zooming out, this was a quarter without many surprises, good or bad. The stock remained flat at $21.88 immediately following the results.

Updated: December 3, 2025 at 10:33 PM EST

Before investing in or passing on Covenant Logistics, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

We cheer for all companies making their customers lives easier, but in the case of Covenant Logistics, we’ll be cheering from the sidelines. To kick things off, its revenue growth was mediocre over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its astounding EPS growth over the last five years shows its profits are trickling down to shareholders, the downside is its diminishing returns show management's prior bets haven't worked out. On top of that, its cash profitability fell over the last five years.

Covenant Logistics’s P/E ratio based on the next 12 months is 11.4x. This valuation multiple is fair, but we don’t have much confidence in the company. There are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $29.67 on the company (compared to the current share price of $20.98).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.