Bank Of America Joins Other Analysts In Downgrading Werner Enterprises

Downgrades In The Sector

In addition, the brokerage also cut Knight Transportation KNX to Neutral from Buy following Werner's announcement.

Related Link: Bank Of America Downgrades Knight Transportation Following Werner Guidance, Downgrade

BofA said the truckload market is being pressured by excess capacity and soft retail demand. Meanwhile, a weak freight market and driver pay hikes led Werner guide its second-quarter earnings below consensus.

Werner sees second-quarter EPS in the range of $0.21 to $0.25. Excluding a $0.03 a share gain from a real estate sale, Werner's pre-announced second-quarter EPS would be between $0.18–$0.22, down 31–44 percent from last year, half of consensus' $0.40 forecast at the mid-point and well below BofA's $0.39 estimate.

Carriers are under pressure from shippers to accept rate declines for contract freight (typically 3–5 percent) or shift to the spot market, where prices are down 20 percent year-over-year.

"We believe this will overhang the Truckload sector, and potentially the entire Transport sector, into earnings," analyst Ken Hoexter wrote in a note.

Looking Forward

Hoexter noted that Werner's outlook is significantly more negative than Swift Transportation Co SWFT's mid-quarter update two weeks ago.

"The soft retail market continues to overhang the transports, with Intermodal volumes down 7 percent QTD year-over-year at the rails, and truckers not seeing benefits from share gains," Hoexter highlighted.

The analyst also cut his EPS estimates of Werner for the second quarter, 2016 and 2017 to $0.20, $1.22 and $1.40, from $0.39, $1.65 and $1.85, respectively.

Related Link: Werner Enterprises Announces Second-Quarter 2016 Earnings Expectations

"While pricing is soft, Werner's admitted self-inflicted wounds of raising driver pay and walking away from lower rated business, while shifting trucks to a soft spot market will overhang Werner's shares into the back half of 2016," Hoexter added.

The analyst also slashed the price target to $22 from $29.

Earlier, JPMorgan downgraded Werner to Neutral from Overweight, and Deutsche Bank downgraded the stock to Hold from Buy.

At the time of writing, shares of Werner had plunged 9.76 percent to $22.27 on the day.