On Sep 26, we initiated coverage on Landstar System, Inc. (LSTR - Free Report) .
The company is benefitting from an upbeat freight scenario leading to a spurt in demand for its services. Owing to this tailwind, it performed impressively during the first half of the year. First-half revenues surged 35% year over year owing to 12% addition to the number of loads hauled and a substantial rise in revenue per load across all modes.
Moreover, Landstar’s projections for the third quarter deserve praise. The company, witnessing strong truckload volumes, expects number of loads hauled by truck to increase approximately 7.7% year over year in the July-September period. Besides, it estimates truck revenue per load to improve 19-22% year over year in the quarter. Further, Landstar estimates revenues in the $1.175-$1.225 billion range, higher than $943.4 million reported a year ago. Also, the company predicts earnings per share of $1.58-$1.64 in the period, subject to specific conditions. This compares favorably with earnings per share of $1.01 registered during third-quarter 2017.
The company’s efforts to reward shareholders through dividends and share buybacks are also appreciative. Landstar hiked its dividend twice so far this year. In January, it raised its dividend by 50% to 15 cents per share. The same was further increased to 16.5 cents in July, reflecting a hike of 10%. With regard to buyback, the company currently has 2 million shares to be bought back under its existing share repurchase program.
Further adding to the positivity is Landstar’s asset-light business model. In an industry that is mostly capital intensive in nature with heavy fixed costs, Landstar operates with low fixed costs as it utilizes a network of independent sales agents and third-party truck capacity providers to offer services. Thus, the company is spared of the lump sum fixed costs of owning the heavy trucking equipment. This in turn, helps it generate higher return on investments.
Surrounded by these upsides, shares of the company have rallied more than 17% so far this year, outperforming the industry’s 5.5% rise.
However, it is worth noting that the entire trucking industry is struggling with a dearth of drivers resulting in constrained truck count. With Landstar generating majority of its revenues from trucking, it cannot escape the blows of catastrophe either. In fact, per American Trucking Associations (ATA), truck tonnage declined in February and March this year on a month-on-month basis, primarily due to capacity constraints. Clearly, this poses as a huge challenge to the company going forward.
Zacks Rank & Other Key Picks
Landstar carries a Zacks Rank #2 (Buy). Other top-ranked stocks in the broader Transportation sector include SkyWest, Inc. (SKYW - Free Report) , ArcBest Corporation (ARCB - Free Report) and Covenant Transportation Group, Inc. (CVTI - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Shares of SkyWest, ArcBest and Covenant Transportation have rallied more than 31%, 49% and 10%, respectively.
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