Saia stock target cut by roughly $100 after disappointing earnings, still a Buy

On Monday, Saia Inc. (NASDAQ:) experienced a revision of its stock price target to $480 from the previous $575, while its Buy rating was reaffirmed by Benchmark. The adjustment follows Saia’s second-quarter earnings report released last Friday, which showed the stock plunging 19% due to earnings that fell short of both the analyst’s and FactSet’s expectations.

Saia’s performance in the second quarter mirrored its first-quarter results, continuing a trend of disappointing earnings. Despite gaining market share last year amid industry disruptions, Saia’s business mix—which leans more towards national accounts and retail—yields relatively lower pricing. This, combined with ongoing softness in the industrial economy, has affected revenue per bill and the operating ratio, both of which did not meet the analyst’s projections.

The costs associated with opening new terminals were also a factor that negatively impacted the quarter, despite the potential for these terminals to enhance service and density for customers. Saia reported that July shipments and tonnage increased by 10% and 4% year-over-year, respectively, but this represented a slowdown from the second quarter, with tougher comparisons ahead.

Saia anticipates the operating ratio (OR) will deteriorate further from the second quarter to the third quarter by about 100-200 basis points, aligning with typical sequential trends. However, the company’s previous target of a 100-150 basis points improvement in OR for the full year 2024 now appears to be in doubt.

Despite these setbacks and the expectation that the stock will likely remain range-bound for some time, Benchmark still considers Saia to be one of the most promising long-term stories in the transportation sector.

The firm anticipates that the stock’s performance will hinge on the company demonstrating the benefits of its newly opened terminals and proving that the shift in business mix has not adversely affected its overall business dynamics.

In other recent news, Saia, Inc. has reported record-breaking revenues in its second quarter of 2024, with an 18.5% year-over-year increase, reaching $823 million. However, the company’s operating ratio has seen a decline, primarily due to costs associated with the opening and relocation of terminals.

In the same vein, Saia’s operating income rose by 14.4% to $137.6 million. The company is in the midst of an aggressive expansion, with plans to open nine more facilities in the third quarter and potentially four more in the fourth quarter.

These developments are recent, with capital expenditures for the year expected to reach around $1 billion. Despite the short-term impact on margins due to new facility investments, the executives remain focused on long-term value and pricing strategy. The company’s growth strategy includes additional terminal openings in the third and fourth quarters.

However, costs associated with new terminal openings and training are impacting margins, and the mix of business may not improve in the short term, affecting the operating ratio. Despite these challenges, Saia is optimistic about growth opportunities in the coming quarters and its ability to adapt to the evolving economy.

InvestingPro Insights

Following recent market events, a closer look at Saia Inc. (NASDAQ:SAIA) through the lens of InvestingPro data and tips may provide investors with additional context. According to InvestingPro, three analysts have revised their earnings downwards for the upcoming period, which aligns with the recent price target revision by Benchmark. The stock has also taken a significant hit over the last week, with a 19.18% decline, and has been trading at a high P/E ratio of 27.92 relative to near-term earnings growth, signaling potential concerns about its current valuation.

Despite the challenges, Saia has demonstrated notable revenue growth over the last twelve months as of Q2 2024, with an increase of 13.28%, and a robust operating income margin of 16.03%. Moreover, analysts predict the company will remain profitable this year, which is reflected in the positive EBITDA growth of 13.46% in the same period. This suggests that while the stock has faced near-term pressures, the underlying business maintains a degree of financial health.

For investors seeking more in-depth analysis, InvestingPro offers additional tips to consider, such as the company’s moderate level of debt and its high return over the last decade. With 11 more InvestingPro Tips available, subscribers can gain a comprehensive understanding of Saia’s financial position and future prospects. To access these insights, use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription at InvestingPro.

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