Here’s Why Landstar System Stock Looks Overpriced At $150
After a rise of over 56% from its March 2020 lows, at the current price of $150 per share, Landstar System stock (NASDAQ: LSTR), a third-party logistics company, appears to be fully valued. LSTR stock has rallied from $96 to $150 off the March 2020 bottom compared to the S&P which moved 75%. LSTR stock has underperformed the market given its rich valuation. Also, the stock is up 31% in the last one year despite revenue falling 10% y-o-y over the last four quarters. While the gradual opening up of the economy is expected to lead to higher demand for transportation, the stock appears to be richly valued when compared to its historical levels, making it vulnerable to downside risk. Our dashboard Buy Or Fear Landstar System Stock provides the key numbers behind our thinking.
LSTR stock is also up 56% from the levels of $96 seen toward the end of 2018. Most of the stock price growth since 2018 can be attributed to the expansion of the company’s P/E multiple. Looking at fundamentals, total revenues declined from $4.6 billion in 2018 to $4.1 billion in 2020, due to lower less than truckload revenues, partly due to capacity constraints seen across the industry, especially in 2019. Furthermore, a 80 bps decline of net income margin and a 7% drop in total shares outstanding, due to share repurchases, has meant that the company’s EPS declined 19% to $4.98 in 2020, compared to $6.18 in 2018.
Despite the company posting a decline in revenue and profits, the P/E multiple expanded from less than 16x in 2018 to over 26x in 2020. The P/E multiple is currently at 26x, which we believe is high and compares with levels of under 16x seen in 2018 and 20x as recently as late 2019.
The coronavirus crisis induced lockdown affected industrial activity and hit the trucking industry. On the positive side, people preferred to stay at home, resulting in higher e-commerce activity, and in turn, higher residential transportation demand. Now with the economy gradually opening up, Landstar System’s LSTR business is also seeing an increase in demand. The company reported a solid 30% jump in its top line in Q4 2020, led by volume and pricing gains primarily for the Van Equipment business.
Landstar System will likely continue to see increased transportation demand in the near term. Any further recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard Trends In U.S. Covid-19 Cases provides an overview of how the pandemic has been spreading in the U.S. and contrasts with trends in Brazil and Russia. Currently, investors seem to be buoyed by Landstar System’s positive revenue and earnings outlook based on the expected recovery in the economic activity, and that appears to be priced in the current stock price of $150. Even if we were to look at the forward earnings estimate of $6.57 for Landstar System in 2021, at the current price of $150, it is trading at a 23x P/E multiple, which is higher than the levels of under 16x seen in 2018 and 20x seen in 2019, making the stock appear vulnerable to downside risk.
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