F - Zacks Investment Research



July 24, 2007

Research Associate: Mahak Arya, M. Fin.

Editor: Sweta Killa, M. Fin.

Sr. Ed.: Ian Madsen, CFA; imadsen@; 1-800-767-3771, x9417

111 N. Canal Street, Suite 1101 ( Chicago, IL 60606

|Heartland Express |(HTLD-NASDAQ) |$14.76 |

Note: This report contains substantially new material. Subsequent reports will have changes highlighted.

Reason for Report: 2Q07 Earnings Update Previous Edition: June 21, 2007

Recent Events

On July 19, 2007, HTLD announced its 2Q07 earnings. Total revenue reported was $149.1 million versus $143.1.0 million in 2Q06. Net income was $19.8 million versus $24.8 million in 2Q06. EPS was $0.20 versus $0.25 in 2Q06.

On May 30, 2007, HTLD paid a quarterly dividend of $0.02 per share to stockholders of record at the close of business on May 24, 2007, as decreed by the Board of Directors on May 14, 2007. A total of approximately $2.0 million will be paid on the Company's 98.3 million outstanding shares of common stock as a result of the quarterly dividend.

Overview

Analysts have identified the following factors for evaluating investment merits of HTLD:

|Key Positive Arguments |Key Negative Arguments |

|Compelling Fundamentals |Fundamental Issues |

|HTLD is a consistent and focused core truckload carrier, which routinely |Heartland has spent more on replacing its fleet in time for the mid-2007 |

|generates operating ratio in the low 80%s. |emissions requirements, and as a result cash surplus was depleted. |

|The company has a debt-free balance sheet. |Rising labor wages and high turnover of employees are major issues that need|

|Growth Opportunities |to be addressed going forward. |

|HTLD is interested in acquisitions that will accelerate its Western |Growth Limitations |

|expansion and expand its Eastern coverage. |HTLD's reliance on service-sensitive, premium-priced freight limits its |

|Regional terminals provide growth platforms. |addressable market. Inability to find this premium freight could result in |

|HTLD has now posted six consecutive years of double-digit earnings growth |slower growth rates. |

|through a combination of strong pricing, organic fleet growth, and accretive|The industry’s concentration in retail and manufacturing makes Heartland |

|acquisitions, and exemplary cost control. |particularly sensitive to consumer spending and inventory levels. |

| |HTLD cites inability to pass along rising costs of fuel, driver pay, and |

| |equipment as risks to profitability. |

Heartland Express, Inc. (HTLD) provides nationwide transportation service to major shippers, using late-model equipment and a combined fleet of Company-owned and owner-operator tractors. HTLD is a short-to-medium haul truckload carrier, operating through a fleet of roughly 3,000 trucks and 7,000 trailers. It employs over 3,000 people and is based in Coralville, Iowa. The Company's primary traffic lanes are between customer locations east of the Rocky Mountains. HTLD also operates eight specialized regional distribution operations in Atlanta, Georgia; Carlisle, Pennsylvania; Columbus, Ohio; Jacksonville, Florida; Kingsport, Tennessee; Chester, Virginia; Olive Branch, Mississippi; and Phoenix, Arizona. These short-haul operations concentrate on freight movements generally within a 400 mile radius of the regional terminal and are designed to meet the needs of significant customers in those regions. The Company's primary customers include retailers and manufacturers. HTLD’s fiscal year ends on December 31; fiscal references coincide with the calendar year.

For more information about the Company, please visit its website at .

Revenue

Both the Company and the Zacks Digest reported 2Q07 revenue of $149.1 million, up 4.2% y/y from $143.1 million in 2Q06.

Provided below is a summary of revenue as given by Zacks Digest:

|In US$ million |

|Positive |23.1% |

|Neutral |69.2% |

|Negative |7.7% |

|Avg. Target Price |$17.39↓ |

|Median Price Target |$17.00↓ |

|Upside from current |17.8% |

|Maximum Upside from current |42.3% |

|Minimum downside from current |11.9% |

|No. of Analysts with Target price/Total |9/13 |

The firm (Bear Stearns) with the Digest low price has valued the stock on 15x -16x 2008 EPS estimate while the firm (Stephens) quoting the Digest high price target has not provided the valuation methodology.

Analysts believe that the Company-specific risks include increased competition, lack of disclosure, management succession, and operating leverage. Sector risks include volatile fuel costs, driver availability, direction of freight rates, economic slowdown, increased government regulation, and rising insurance costs.

For more details please refer to the consensus tab of the HTLD spreadsheet.

Capital Structure/Solvency/Cash Flow/Governance/Other

The Company ended 2Q07 with $172.8 million in cash and equivalents (from $365.0 million in 1Q07) following its previously announced $197.0 million special dividend distributed earlier in 2Q07. Its balance sheet continues to be debt free and its only off balance sheet operating leases were for the leasing of its prior headquarters facility, which costs approximately $3.0 million per year, but the Company announced it moved into its new headquarters, in North Liberty, IOWA.

One firm (Morgan Keegan) forecasts $131.0 million in cash flow from operations and net capital expenditure of approximately $44.0 million in FY to yield free cash flow of $87 million (before the purchase of government securities or dividends). Moving forward, it believes HTLD will use a portion of this growing cash position to (1) make acquisitions, (2) raise its dividend and (3) repurchase shares. The Company has $4.9 million shares remaining under its existing share repurchase program. Given its strong cash position, the Company could buyback approximately 20.0% of its outstanding stock over the next twelve months without putting any debt on the balance sheet.

One firm (BB&T) believes the Company still has more than enough financial firepower to aggressively repurchase shares, materially increase its $0.02/share quarterly dividend, and/or finance an acquisition (potentially in the West, where management has discussed growing in the past).

One firm (Sidoti) believes that the Company will make a sizable acquisition or some external growth initiative for the shares to cross their two-year trading range of about $14.00–$19.00.

During 2Q07, the Company announced the completion of its Phoenix, Arizona, operational and shop facility. The facility will serve as HTLD’s base of operations for its western United States transportation services. HTLD also moved to its new corporate headquarters during 2Q07 in North Liberty, Iowa. In addition, HTLD adopted Financial Accounting Standards Board (FASB) Interpretation No. 48 Accounting for Uncertainty in Income Taxes (FIN 48), effective January 1, 2007. The $4.7 million cumulative effect of adopting FIN 48 was recognized as a charge against retained earnings.

Long-Term Growth

The Zacks Digest long-term growth rates range from 10.0% (Sidoti; Zacks Investment Research; Bear Stearns; Wachovia) to 13.0% (Raymond James) with an average of 10.6%.

According to one firm (R W. Baird), HTLD completed five acquisitions over the past two decades, which enabled the Company to accelerate penetration of new and existing territories. The Company is interested in acquisitions to both accelerate the Western expansion and deepen the Eastern geographic coverage, and believes that an acquisition generating $100.0 million in revenue could be as much as $0.05–$0.10 per share accretive annually once fully integrated.

Western Expansion: Heartland initiated its expansion into the Western United States over a year ago, and views it as a favorable avenue of growth. The Company recently moved into its newly built terminal in Phoenix, and it is estimated that HTLD is now operating over 100 tractors out of the location. The new location includes a repair shop and fuel facility, which will help the operation, cut costs (immaterial to the consolidated operation). The Company noted that this new operation is exceeding its expectations. Although Heartland is being selective within this new market, its current customer base is funneling ample freight opportunities through its Phoenix terminal. Further with freight demand increasing, HTLD will likely open additional locations west of the Rockies to expand its geographic footprint, potentially in Salt Lake, Las Vegas, Denver, and/or Los Angeles, to build greater lane density and foresees its Western division accounting for 10.0%–20.0% of total revenue within the next five years. Analysts also stated that they would not be surprised if Heartland opens a new terminal in Texas, a location east of the Rockies where the Company has yet to build a significant presence.

HTLD's acquisition philosophy is to identify underperforming assets that can quickly be turned around at relatively attractive prices to expand its geographic footprint or add lane or customer density. Management noted that the Company continues to look vigilantly for acquisitions but have yet to find a suitable match. While a west of the Rockies carrier would make sense, given the Company's entrance into this market, high driver and equipment standards, and valuation may be a limiting factor.

One firm (Morgan Keegan) believes a carrier with annual revenues approaching $100 million would have to be targeted to be worthwhile from an overall growth standpoint. Although such an announcement could act as a catalyst for the shares, it believes the Company's patient acquisition strategy has served it well in the past. Given the recent deterioration in the truckload market (lower demand and higher capacity), the firm believes that more medium-sized carriers could be looking to exit the business, especially given the inflationary costs currently affecting the industry (drivers, 2007 engines, fuel, higher interest rates).

Individual Analyst Opinions

POSITIVE RATINGS

Morgan Keegan – Outperform (no target price) – 07/20/07 – The firm maintains an Outperform rating. INVESTMENT SUMMARY: The firm believes the active share repurchase program, acquisition announcement, and aggressive Western expansion – would all act as catalysts for HTLD shares. Further, it believes that HTLD will remain disciplined in the more difficult environment and potentially seek to capitalize on a strategic acquisition given the Company's proven management team and strong track record.

Raymond James – Strong Buy ($20.00) – 07/20/07 – The firm maintains a Strong Buy rating but reduced the target price from $21.00 to $20.00. INVESTMENT SUMMARY: The firm believes that Heartland remains one of the best truckload franchises, generating strong returns, and cash flow. It feels the Company will continue buying back shares and make acquisitions.

Stephens – Overweight ($21.00) – 07/23/07 – The firm reiterates an overweight rating but downgraded the target price from $22.00 to $21.00.

NEUTRAL RATINGS

Sidoti – Neutral ($18.00) – 07/20/07 – The firm maintains a Neutral rating and a target price of $18.00. INVESTMENT SUMMARY: HTLD remains one of the best managed transport companies in the industry with industry-leading margins, a clean balance and an impeccable service reputation. However, in the absence of large acquisitions the firm does not see any significant catalysts that could take the share price significantly higher.

Wall Street Strategies – Hold ($16.00) – 07/20/07 – The firm downgraded the rating from Buy to Hold and reduced the target price from $20.00 to $16.00. INVESTMENT SUMMARY: The firm believes that the Company has a sound balance sheet, a young fleet, and could be an acquisition target; however, it does not recommend purchasing additional shares to capitalize on this potential. The Company currently trades approximately at par with the industry average with respect to it price to earnings ratio; but other valuation metrics such as price to sales and price to book trades at a slight premium. Shares appear to be fairly valued at this level.

Zacks Investment Research – Hold ($17.00) – 07/20/07 – The firm maintains a Hold rating and reduced the target price to $16.00. INVESTMENT SUMMARY: The firm expects revenue growth to be below historical trend over the near term, reflecting the continued industry-wide weakness. Moreover, it anticipates depreciation expense to rise on HTLD’s new and expanded fleet, and further equipment gains to be lower during FY07. However, it continues benefiting from its Western expansion.

BB&T – Hold (no target price) – 07/19/07 – The firm maintains a Hold rating. INVESTMENT SUMMARY: The firm is of the opinion that HTLD will most likely continue to expand into the West. However, it foresees slow steady growth in the near term and believes that HTLD needs a material catalyst, an accretive acquisition or a major share repurchase program to get the stock price moving higher.

Deutsche Bank – Hold ($17.00) – 07/19/07 – The firm maintains a Hold rating and lowered the target price from $17.50 to $17.00. INVESTMENT SUMMARY: The firm believes that signs of freight volume improvement have not materialized while current market continues to assume a 2H07 recovery. Key risks include slower economy, pricing pressure, and operational missteps, and upside risks include private equity speculation and higher-than-anticipated gain on sale of equipment.

J.P. Morgan – Neutral (no target price) – 07/23/07 – The firm maintains a Neutral rating. INVESTMENT SUMMARY: HTLD is a high quality truckload Company, which realizes strong returns and meaningful free cash generation. It believes that further deterioration in the truckload pricing and a decline in gains on used equipment may be a serious matter of concern.

R W. Baird – Neutral ($18.00) – 07/20/07 – The firm maintains a neutral rating with a target price of $18.00. INVESTMENT SUMMARY: The firm recognizes HTLD as a good long-term holding and the most lucrative of the truckload carrier stocks given its better-than-industry trends, and believes that the Company can achieve double-digit revenue and earnings growth in a good economy.

Stifel Nicolaus – Hold (no target price) – 07/20/07 – The firm maintains a Hold rating as the shares are fully valued at the current level. INVESTMENT SUMMARY: The firm views HTLD as one of the premier operators in the truckload space and states that it consistently produces solid financials (prior to the impact of gains on sale of equipment) even in a very challenging operating environment.

Wachovia – Market perform ($16.00-$17.00) – 07/24/07 – The firm maintains a Market perform rating. INVESTMENT SUMMARY: Although HTLD shares warrant a premium to the truckload sector, the firm sees limited potential growth without an acquisition.

NEGATIVE RATINGS

Bear Stearns – Underperform ($13.00) – 07/20/07 – The firm maintains an Underperform rating but lowered the target price from $14.50 to $13.00. INVESTMENT SUMMARY: The firm believes that the sudden increase in expenses is likely the direct effect of a more challenging pricing environment in which the Company has to reduce rates to protect business or get new business.

Research Analyst: Mahak Arya

Copy Editor: Salma Islam

Content Ed: Sweta Killa

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Zacks Research Digest

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