Landstar System LSTR is benefiting from its robust financial stability and strong liquidity. The shareholder-friendly approach also bodes well for the company. However, the company is grappling with the freight market downturn.

Factors Favoring LSTR

Landstar's commitment to shareholder value is commendable, as the company consistently returns significant capital to its investors through stock repurchase programs and dividends. In the first half of 2024, Landstar repurchased shares of its common stock for a total of $57 million and paid $95 million in dividends. Moreover, in August 2024, LSTR paid a quarterly dividend of $0.36 per share to its stockholders. This quarterly dividend includes a 9% increase to its regular quarterly dividend.

Despite the softness prevailing in the freight environment, the company demonstrates strong financial stability and cash-generating capabilities. By the end of the second quarter of 2024, LSTR reported cash and short-term investments totaling $504 million. For the first half of 2024, cash flow from operations reached $142 million, while cash capital expenditures amounted to $17 million.

The company exited the second quarter of 2024 with a current ratio (a measure of liquidity) of 2.17. A current ratio of greater than 1 is always desirable as it indicates that the company has enough cash to meet its short-term obligations.

Shares of LSTR have rallied 4.3% over the past year compared to the industry’s decline of 4.9% in the same period.

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LSTR: Key Risks to Watch

The company’s prospects are being negatively affected by softness in freight market demand. In the second quarter of 2024, total loadings of machinery dropped by 12% year over year. Similarly, loadings for automotive equipment and parts fell by 1%, while building products and hazardous materials decreased by 1% and 14%, respectively.

Moreover, substitute linehaul loadings, which had been one of the strongest performers during the pandemic and are highly sensitive to consumer demand, decreased by 29% compared to the second quarter of 2023.

As a result, Landstar's top line is expected to remain weak in the near term. For the third quarter of 2024, the company anticipates a decline in truckloads in the range of 6-10% year over year.

The trucking industry is also grappling with a persistent driver shortage. As seasoned drivers retire, companies struggle to attract new talent, particularly from younger generations, who may not find the profession appealing.

LSTR’s Zacks Rank

LSTR currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked stocks for investors’ consideration in the Zacks Transportation sector include Ryanair RYAAY and Canadian Pacific Kansas City Limited CP.

Ryanair currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.  RYAAY has an expected earnings growth rate of 10% for the current year.

The company has a discouraging earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in two of the trailing four quarters and missed twice, delivering an average miss of 30%. Shares of RYAAY have risen 10.2% in the past year.

Canadian Pacific also sports a Zacks Rank #1 at present and has an expected earnings growth rate of 0.3% for the current year.

The company has an encouraging track record with respect to the earnings surprise, having surpassed the Zacks Consensus Estimate in three of the trailing four quarters and missing once. The average beat is 2.2%. CP shares have rallied 10.6% in the past year.

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