Citi has initiated coverage on truckload carrier Werner Enterprises, rating it a “sell” with a target price about 7% below the current market price. This was part of a broader initiation on 19 transportation and logistics companies, with Werner receiving the only sell recommendation.
Details
On Wednesday, October 9, Citi initiated coverage on Werner Enterprises with a “sell” and a target price of $34 per share, as reported by Investing.com. At the close of trading on Wednesday, the stock was quoted at $36.35 per share, up 6.5% for the day. Werner is off over 14% for the year to date and down around 6% for the last 12 months.
According to MarketWatch, 16 analysts currently track the company. Three recommend buying the stock (i.e., rated as “buy” or “overweight”), seven holding it, and six selling. The average analyst target price is $37.13 per share, about 2% above the October 9 closing price.
Why Citi initiated with a ‘sell’
Werner Enterprises provides transportation and logistics services across the U.S., Mexico, and Canada. This includes both turnkey (end-to-end) solutions, where the company handles every aspect of the logistics process, and intermodal shipping, which involves the company managing multiple modes of transportation. Werner’s revenue declined 6% year over year in the second quarter of 2024 to $760.8 million. The decline was attributed largely to lower revenue from the trucking segment, which itself was affected by lower fuel surcharge revenues.
In its initiation report, Citi cites concerns about Werner’s “significant exposure” to the discount retail sector, which is currently experiencing high inventory-to-sales ratios, as reported by Investing.com. Discount retailers are losing market share to major online retailers such as Temu and Shein that source directly from China. Citi expects this trend to continue to pressure freight rates for truckload carriers focused on discount retail.
Context
On Tuesday, October 8, Citi initiated coverage of 19 companies in the transportation and logistics industry, according to Investing.com. The sector has seen a “significant downturn,” with freight rates falling due to a supply-demand imbalance. This has hit margins and earnings.
“In our view, this weakness presents an opportunity to buy quality companies at reasonable prices with significant earnings upside potential as the cycle turns,” Citi noted.
As its top picks in the sector, Citi named JB Hunt Transport Services, Saia, CSX Corporation, and UPS. Werner was the only company to receive a ‘sell’ rating.
