Werner Enterprises (WERN) is facing a difficult period as the freight market downturn and rising operating expenses take a toll on its prospects. These challenges are impacting the company’s financial stability and making it a less appealing choice for investors. Let’s examine the key risks that are weighing down WERN.
Southward Earnings Estimate Revision:
Analysts have revised their earnings estimates for WERN downwards, signaling a lack of confidence in the company’s near-term performance. The Zacks Consensus Estimate for current-quarter earnings has been reduced by 33.3% in the past 60 days, and the consensus mark for earnings for the entire year has dropped by 26% over the same period.Weak Zacks Rank:
Werner Enterprises currently holds a Zacks Rank #5 (Strong Sell), indicating a bearish outlook on the company’s future performance.Unimpressive Price Performance:
WERN shares have underperformed the market, declining 7% in the past year compared to the industry’s 0.2% rise.Bearish Industry Rank:
The trucking industry, where Werner Enterprises operates, has a Zacks Industry Rank of 222 (out of 251), placing it in the bottom 11% of Zacks Industries. This indicates that the industry itself is facing headwinds. Studies show that industry performance significantly impacts a stock’s price movement, so a weak industry environment can hinder even strong companies.High Costs:
The most pressing issue for WERN is the rising operating expenses. The company is grappling with escalating labor and fuel costs, which are significantly impacting its bottom line. In the second quarter of 2024, labor costs (salaries and benefits) accounted for 35.1% of total operating expenses, reaching $741.2 million, while fuel costs totaled $72 million. The freight market downturn is exacerbating these challenges, leading to a 6% year-over-year decline in WERN’s top line.Driver Scarcity:
The trucking industry is facing a persistent driver crisis, which is further complicating supply chain challenges across the United States. Driver scarcity limits trucking capacity, making it difficult for companies like WERN to operate efficiently. Bob Costello, chief economist at the American Trucking Associations, predicts a shortage of over 160,000 drivers by 2030.Alternative Investment Options:
Investors seeking exposure to the transportation sector might consider better-ranked stocks such as C.H. Robinson Worldwide (CHRW) and Westinghouse Air Brake Technologies (WAB).C.H. Robinson Worldwide (CHRW):
CHRW holds a Zacks Rank #1 (Strong Buy) and boasts an expected earnings growth rate of 25.2% for the current year. The company has a strong track record of exceeding earnings estimates.Westinghouse Air Brake Technologies (WAB):
WAB currently holds a Zacks Rank #2 (Buy) and has an expected earnings growth rate of 26% for the current year. Although its earnings surprise track record is less impressive than CHRW, it has still surpassed the Zacks Consensus Estimate in three out of the past four quarters.These challenges highlight the difficult environment faced by Werner Enterprises. The freight market downturn and rising costs are creating a perfect storm that is impacting the company’s financial performance and making it a risky investment at this time. Investors might find better opportunities within the transportation sector by considering alternative companies with stronger fundamentals and growth prospects.
