Werner Enterprises‘ WERN finds itself in troubled waters as the freight market downturn hampers its top line, clouding the company’s future. Rising operating expenses add to the strain on its financial stability. Mounting labor and fuel costs are putting the squeeze on WERN’s profitability, presenting a cautionary tale for potential investors.
Let’s dive deeper into the muddled situation.
The Perils Ahead for WERN
Downward Revisions in Earnings Estimates:The Zacks Consensus Estimate for this quarter’s earnings has taken a downturn of 33.3% in the past 60 days. Similarly, the consensus estimate for the full year has plummeted by 26% during the same period. These unfavorable revisions mirror a lack of faith from brokers in the company’s future prospects.
Languishing Zacks Rank: Werner Enterprises currently sits at a rather bleak Zacks Rank #5 (Strong Sell).
Lackluster Stock Performance: WERN’s shares have nosedived by 7% in the last year, a stark contrast to the industry’s 0.2% uptick.
Image Source: Zacks Investment Research
Gloomy Industry Outlook: The industry to which Werner Enterprises belongs currently finds itself at an abysmal Zacks Industry Rank of 222 out of 251. This unfavorable ranking places it in the bottom 11% of all Zacks Industries. Research suggests that 50% of a stock’s price movement is directly influenced by the overall performance of its industry group.
A mediocre stock within a robust industry often outshines a strong stock in a weak sector. Understanding the industry’s trajectory is key to making informed investment decisions.
Rising Costs: Escalating operational expenses are eating into WERN’s profits, challenging its financial fortitude. The surge in outlays stems from escalating labor and fuel costs. In the second quarter of 2024, labor expenses, encompassing salaries and benefits and constituting 35.1% of total operating costs, tallied up to $741.2 million. Moreover, fuel costs stood at $72 million.
The downturn in the freight market paints a bleak picture for the company’s prospects, resulting in a 6% year-over-year decline in its top line.
The enduring shortage of drivers in the trucking sector is compounding supply-chain hurdles across the nation. The scarcity of drivers is constraining trucking capacity, creating operational challenges for companies like WERN. Chief economist of the American Trucking Associations, Bob Costello, predicts a shortfall of over 160,000 drivers by 2030, further exacerbating the situation.
Promising Alternatives for Investors
For investors seeking better opportunities in the Transportation sector, some noteworthy options include C.H. Robinson Worldwide CHRW and Westinghouse Air Brake Technologies WAB.
C.H. Robinson Worldwide currently holds an appealing Zacks Rank #1 (Strong Buy). CHRW is projected to experience an impressive earnings growth rate of 25.2% for the current year.
The company boasts a commendable track record in beating earnings expectations, surpassing the Zacks Consensus Estimate in three of the last four quarters with an average positive surprise of 7.3%. CHRW’s shares have surged by 14.2% over the past year.
WAB is presently bestowed with a Zacks Rank #2 (Buy) and anticipates an earnings growth rate of 26% for the ongoing year.
Despite a mixed record in exceeding earnings estimates, having outperformed the Zacks Consensus Estimate in three of the last four quarters with an average beat of 11.8%, WAB has seen its shares soar by 61% in the last year.