You Can Ride the Trucking Rebound Without Owning a Single Truck With This Stock

Old accident claims knocked a freight broker’s stock off a cliff, even as revenue jumped and its trucking network grew.

Days later, the CEO bought shares with his own money, the first insider purchase there in over 4 years. When the person with the best view of the business buys the dip, you should at least see what he’s seeing.

Landstar System (NASDAQ: LSTR) is trading far below its 52-week high after a brutal post-earnings drop. Odd timing, because revenue just jumped 25% and the CEO is buying shares.

If you think of Landstar as just another trucking company, you’re missing the trick. It doesn’t own a giant fleet.

It runs a network of independent truck owners and sales agents, takes a cut of every load, and lets other people carry the cost of the trucks. When freight heats up, that model gets paid without writing big checks for equipment.

Strong freight, ugly insurance bill

Landstar System (NASDAQ: LSTR) grew revenue 25% in its latest quarter, and still got taken out back. The culprit wasn’t freight. It was insurance, the least exciting line on the income statement, finally getting its moment in the spotlight.

Insurance and claims costs jumped from a year earlier, driven by $22 million in adjustments tied to prior-year accidents, including reserve increases and settlement costs.

That knocked earnings per share well below what Wall Street had penciled in, and the stock fell hard the next day.

Look past that one line and the quarter was strong. Truck revenue climbed 29%, and both of its main equipment types, vans and flatbeds, grew more than 30%.

What management expects next

Management skipped formal fourth-quarter guidance, pointing to geopolitical and legal noise. It did say October was tracking slightly above normal seasonal patterns, with loads and pricing both running ahead of last year.

In other words, the freight engine kept running into the new quarter. The insurance hit is backward-looking. The freight trends are forward-looking, and they’re pointing the right way.

The first insider buy in over 4 years

A few days after the drop, CEO Frank Lonegro bought 5,000 shares in the open market, $715,000 of his own money. That lifted his direct stake by more than a fifth.

It’s also the first insider purchase at Landstar since a director bought shares back in early 2022. Insiders sell for plenty of reasons. They buy for one.

Why the timing tells you something

Lonegro had a front-row seat to every number behind the miss: the claims, the reserves, and the October freight data. He saw all of it and decided the stock was worth buying anyway.

That’s a strong hint he views the insurance hit as a one-quarter problem and not a broken business. You get to buy near the same level he did, without the inside view.

Pricing is doing the heavy lifting

Revenue per truckload jumped 25%, while the number of loads rose just 3%. That gap tells you this wasn’t Landstar hauling a lot more freight. It was Landstar getting paid a lot more for each load. Same trucks, fatter paychecks.

That’s what a tightening freight market looks like. When shippers have to pay up to get their goods moved, a broker that sits in the middle of thousands of loads captures that upside without adding trucks or drivers.

Heavy haul is the sleeper

Landstar’s heavy haul business, the oversized loads that need special trailers and permits, is growing fast. Management says demand is coming from data centers, energy, government, and aerospace projects.

Those are long, complex jobs that call for specialized equipment and know-how. As long as data centers and energy projects keep getting built, the heavy gear has to get there by truck, and Landstar is lined up to haul it.

More trucks joining the network

Landstar’s independent truck owners, which it calls business capacity owners, added a net 165 trucks in the quarter. That’s the strongest quarterly gain since 2021.

Truck owners join when they expect to make money.

A growing roster means more capacity to sell into a tightening market, and it came with a 5% improvement in their accident frequency. Safer fleets mean fewer claims down the road.

A balance sheet built for bumpy roads

Landstar holds more cash than debt. Its debt is a sliver of its equity, and it keeps mailing out a quarterly dividend like clockwork.

Asset-heavy carriers have to keep paying for trucks and trailers through every downturn. Landstar doesn’t. That cushion means one ugly insurance quarter is an annoyance, not a threat.

Forward earnings tell the story

On trailing earnings, the stock looks pricey, because those earnings include some rough freight years and this insurance hit.

On forward estimates, the multiple shrinks dramatically, because Wall Street expects profits to climb sharply over the next year.

That gap is the bet. If the freight upturn holds and insurance costs settle down, those forward earnings show up, and today’s price looks cheap in hindsight.

Analysts trimmed, but still see upside

Several firms cut their price targets after the quarter, mostly to bake in higher insurance costs. Even after those cuts, the average target still sits well above where the stock trades.

Put simply, the people who cut their numbers still think the stock is headed higher. The selloff priced in far more pain than they did.

That number is insurance and claims costs, the line that sank the quarter.

Most of the spike came from adjustments to old claims, including reserve increases and settlements tied to accidents that already happened.

Those don’t repeat every quarter. Those elevated charges cost $0.47 per share. Add them back and the quarter clears what Wall Street was expecting. So much for the “miss.”

Insurance is a cost every trucking network pays, though, and Lonegro himself said Landstar isn’t immune to the claims inflation hitting the whole industry.

So don’t expect the line to drop to zero. Expect it to come down from this quarter’s peak, which still leaves plenty of room for earnings to grow.

More old claims could surface. If additional prior-year accidents need bigger reserves, insurance costs stay elevated for another quarter or two, and the CEO’s purchase looks early.

The legal landscape is shifting. A Supreme Court case on broker liability could push brokers toward larger insurance coverage and tougher liability rules.

Landstar already carries a big insurance program and is positioning to win share from weaker brokers, but higher required coverage could still lift costs.

The freight recovery could stall. With no formal guidance, the bull case leans on freight pricing staying firm. If rates soften heading into next year, revenue growth slows, and the stock loses its best argument.

The market treated a backward-looking insurance charge like a broken business. Underneath, revenue is surging, pricing is firm, more trucks are joining the network, and the balance sheet has more cash than debt.

The CEO’s first-in-years purchase is the cherry on top.

I’d buy it here. You’re getting a high-quality freight broker at a discount, right as the cycle turns in its favor.

What would change my mind is another round of big reserve increases or a clear rollover in freight pricing. If the stock breaks and holds below $130, step back and reassess.

Entry zone: $140 to $150. Add on weakness toward $135. Target: $185 to $200 over 9 to 15 months. Confidence: high.

Looking to buy? Start a position in the $140 to $150 range while the insurance scare keeps the price down. You’ll collect the quarterly dividend while you wait.

Already own it? Hold. In the next report, zero in on insurance and claims costs, freight pricing, and whether truck owners keep joining the network.

Main risk to respect: Another big insurance charge would test your patience fast. Size your position so a second messy quarter doesn’t shake you out.

That's our coverage for today; thanks for reading! Reply to this email with feedback or any value stocks you want me to check out.

Best Regards,
—Noah Zelvis
Undervalued Edge