Jefferies Initiates Coverage On Landstar System With A Hold Rating

Jefferies has initiated coverage on Landstar System LSTR with a Hold rating and $45 PT. Unlike C.H. Robinson Worldwide CHRW and Expeditors International EXPD, which Jefferies thinks are nearing or have hit positive inflection points, it sees greater near-term headwinds at LSTR. Top-line headwinds include the continued in-sourcing of capacity by a large substitute line-haul customer, moderation in truckload load and yield growth to LSTR, and the loss of 1-2 large intermodal agents. Jefferies expects industry-wide TL loads and yields to start missing high-end consensus expectations around mid-2011. This usually hastens investor rotation into the asset-light group. Intermediate-term, if LSTR can bring net operating margins back to past-peak, there's an add'l $0.46 of EPS tailwind. Risks to the target price include limited operating leverage into a freight upturn, and accident/claims risk from an unusually large deductible. LSTR is trading higher at $41.45