On Tuesday, UBS made a notable adjustment to its stance on Werner Enterprises (NASDAQ:WERN) stock, shifting the rating from Buy to Neutral and setting a new price target of $39.00. The revision comes amid concerns about a potential lag in trucking pricing inflection and its impact on the company's earnings projections for the coming years.
The analysis by UBS indicates a possible downside to Werner's earnings per share (EPS) estimates for 2025 and 2026. This is attributed to a delayed pricing inflection in the trucking supply and demand cycle.
Additionally, the analyst pointed out that the pull forward of imports in 2024 could serve as a headwind to domestic freight activity in 2025. This scenario may constrain year-over-year growth in Werner's base revenue per mile to approximately 2%.
Looking further ahead, UBS anticipates that stronger import growth, estimated at a 4% increase, coupled with further reductions in truckload (TL) capacity, could tighten the truckload market.
This tightening is expected to support a 6%-7% growth in Werner's base revenue per mile in 2026. However, even with these factors considered, UBS projects a 2025 EPS of $1.45 and a 2026 EPS of $2.45 for Werner, which are 32% and 18% below the consensus estimates, respectively.
Despite the lower EPS estimates from UBS compared to consensus figures, there is a belief that there could be an improvement in investor expectations regarding normalized earnings.
The current stock price, with a price-to-earnings (P/E) ratio of 16 times, suggests that it is already factoring in $2.18 of normalized earnings, which is 10% below UBS's estimate.
In light of these projections and the limited upside to earnings relative to what is currently reflected in Werner's stock price, UBS has opted to downgrade the stock from Buy to Neutral. This change reflects a cautious outlook on the company's financial performance in the near to medium term.
In other recent news, Werner Enterprises faced several challenges in its financial performance. The company reported an 8% decline in revenues for the first quarter of 2024, alongside adjusted earnings per share of $0.14. Despite these setbacks, Werner Enterprises managed to maintain stability in its Dedicated offering and steady One-Way Truckload volumes.
Analyst firms JPMorgan and Wells Fargo have expressed caution regarding the company's prospects, both downgrading Werner Enterprises stock to Underweight. JPMorgan cited sustained pressures in the freight market and increased competition in the trucking sector, while Wells Fargo highlighted challenges due to low rates, high spot market exposure, and intensifying competition.
Despite the challenging landscape, Werner Enterprises demonstrated its commitment to shareholder value through recent initiatives. It announced a new stock repurchase program, authorizing the buyback of up to 5 million shares of its common stock, surpassing the previous authorization with about 1.6 million shares remaining for repurchase.
Additionally, Werner Enterprises continues its tradition of quarterly cash dividends, announcing a $0.14 per share payout. These are recent developments within the company as it navigates the dynamics of the freight market.
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