Amid heightened market volatility investors will certainly be cautious of “pricey” stocks that could fall as many of the big tech giants are starting to give back their lofty gains as well.
Unfortunately, Landstar System LSTR is one such stock that could drop as last week’s weaker-than-expected jobs report sparked mild recessionary fears in the US while tensions between Iran and Israel have led to global geopolitical concerns.
Landing a Zacks Rank #5 (Strong Sell) and the Bear of the Day, let’s see why there may be more downside risk ahead for the transportation management solutions company.
Weaker Industry Demand
Landstar has been grappling with a challenging freight environment as the impact of accumulated inflation on goods continues to impact truckload volumes in relation to consumer spending.
Correlating with such, Landstar’s Zacks Transportation-Truck Industry is currently in the bottom 3% of over 250 Zacks industries. Feeling the industry's rift, Landstar reported Q2 EPS of $1.48 last Tuesday which declined 20% from $1.85 a share in the comparative quarter despite slightly edging expectations.
However, quarterly sales of $1.22 billion missed estimates of $1.25 billion by 2% and declined 11% from $1.37 billion in Q2 2023.
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Subpar Q3 Guidance
Further indicating it may be time to sell Landstar’s stock was the company’s weaker-than-expected EPS and revenue guidance for the third quarter. This has led to earnings estimate revisions dropping in the last week with Landstar’s fiscal 2024 and FY25 EPS estimates now down 4% and 5% over the last 30 days respectively.
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Valuation Concerns
Lastly, Landstar has some valuation concerns such as the company’s EV/ EBITDA ratio and price-to-cash flow which is higher than preferred levels and its industry average.
Landstar does trade at 30.6X forward earnings which is slightly below its industry average of 31.5X but above the S&P 500’s 22.5X. Furthermore, industry risk and declining EPS estimates may start to question the earnings premium Landstar commands to the broader market.
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Bottom Line
With broader indexes experiencing a correction over the last week, Landstar’s price tag of $185 a share may not be worth the risk at the moment considering the weaker outlook for the tranportation-trucking industry.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
