Werner Enterprises (WERN)

Apr 22, 2021

Werner Enterprises (WERN) Long Term: 6-12 Months Zacks Recommendation: Neutral (Since: 11/09/20) $46.12 (As of 04/21/21) Prior Recommendation: Outperform Price Target (6-12 Months): $48.00 Short Term: 1-3 Months Zacks Rank: (1-5) 3-Hold Zacks Style Scores: VGM:A Value: A Growth: B Momentum: C

Summary Price, Consensus & Surprise

Werner’s efforts to reward shareholders are impressive. In February, the company hiked its dividend by 11.1%. Its cost- control measures to combat the sluggish freight scenario bode well. With improving freight demand, Werner is gradually recovering from the coronavirus-led slump. Werner Logistics segment’s revenues increased 8% year over year in the fourth quarter of 2020, after having declined successively for three quarters. However, the company’s Truckload Transportation Services (TTS) segment’s revenues continue to be weak. Revenues from the unit fell 2% year over year in the fourth quarter. The same declined 3.5% in 2020. Additionally, truck driver shortage continues to pose a challenge to Werner’s operations. Mainly due to softness in the TTS segment, shares of Werner have underperformed its industry in a year.

Data Overview Sales and EPS Growth Rates (Y/Y %)

52 Week High-Low $48.81 - $36.00 Sales EPS

20 Day Average Volume (sh) 526,826

Market Cap $3.3 B

YTD Price Change 22.5%

Beta 0.85

Dividend / Div Yld $0.40 / 0.9%

Industry Transportation - Truck

Zacks Industry Rank Top 28% (70 out of 254)

Sales Estimates (millions of $) Last EPS Surprise 14.1% Q1 Q2 Q3 Q4 Annual* Last Sales Surprise 1.4% 2022 2,643 E EPS F1 Est- 4 week change -0.5% 2021 616 E 622 E 639 E 655 E 2,546 E Expected Report Date 04/28/2021 2020 593 A 569 A 590 A 620 A 2,372 A Earnings ESP 2.8% EPS Estimates Q1 Q2 Q3 Q4 Annual* P/E TTM 18.5 2022 $3.30 E P/E F1 14.6 2021 $0.63 E $0.79 E $0.83 E $0.93 E $3.17 E PEG F1 1.2 2020 $0.40 A $0.62 A $0.69 A $0.89 A $2.59 A

P/S TTM 1.4 *Quarterly figures may not add up to annual.

The data in the charts and tables, including the Zacks Consensus EPS and sales estimates, is as of 04/21/2021. The report’s text and the analyst-provided price target are as of 04/22/2021.

Werner Enterprises, Inc. is a transportation and logistics company founded in 1956. Headquartered in Omaha, NE, the company is primarily focused on transporting the truckload shipments such as retail store merchandise, consumer products, grocery products and manufactured products. The company operates mainly under two segments — Truckload Transporation Services (TTS) and Werner Logistics.

TTS: The TTS unit consists of Dedicated and One-Way Truckload. Dedicated offers truckload services by catering to the needs of a specific customer. At 2020-end, fleet size at the Dedicated unit was 4,945, up 6.8% year over year. Meanwhile, the One-Way Truckload comprises medium-to-long-haul van (Van) fleet, expedited (Expedited) fleet, regional short-haul (Regional) fleet and Temperature Controlled fleet. The medium-to-long-haul van transports various consumer nondurable products and other commodities while the expedited fleet delivers timely truckload services.

The regional short-haul fleet provides truckload van service across the United States. Meanwhile, the Temperature Controlled fleet renders truckload services for temperature-dependent products using temperature-controlled trailers. Trucks in service at the segment decreased 2.1% year over year to 7,830 at the end of 2020.

Werner Logistics: The Werner logistics unit is a non-asset-based logistics service provider. The segment operates under five units: truck brokerage (Brokerage), freight management (Freight Management), intermodal (Intermodal), Werner Global Logistics international (“WGL”) and Werner Final Mile (“Final Mile”). The Brokerage segment completes customer shipments utilizing contracted carriers while Freight Management provides single-source logistics management services.

The Intermodal unit offers rail transportation services conjointly with rail and drayage providers whereas the Werner Global Logistics international offers management of global shipments. Meanwhile, the Final Mile caters to home and business deliveries of bulky products.

During 2020, TTS revenues accounted for 78% of the top line while Werner Logistics constituted 20% of the total revenues. Other sources accounted for the rest.

Zacks Equity Research: WERN Page 2 of 8 Reasons To Buy: Werner is gradually recovering from the coronavirus-induced slump, thanks to improving Rebound in the Logistics freight market conditions. Notably, Werner Logistics segment’s revenues increased 8% year segment is encouraging. over year in the fourth quarter of 2020, after having declined successively for three quarters. The company’s cost- The segment benefited from 21% rise in intermodal logistics volume. The segment is likely to control measures are an aid first-quarter results as well. Detailed results will be out on Apr 28. added positive.

Werner’s efforts to add shareholder value via dividends and shares repurchases are commendable. The company has a consistent track record of paying dividends since 1987. The latest dividend hike was in February when it raised the quarterly dividend by 11.1% to 10 cents per share (40 cents annually). With regard to buybacks, the company repurchased $4.9 million shares for $171 million over the last three years. The company paid dividends worth $334 million to shareholders over the same period.

Werner’s cost-cutting measures to combat the sluggish freight scenario are appreciative. Notably, operating expenses declined 4.2% year over year in 2020. Notably, fuel costs decreased 33.4% in the same period. In 2020, Werner controlled costs with sustainable improvements through increased associate productivity and by better leveraging its procurement spend, and in turn generated annualized sustainable cost savings of nearly $23 million.

The company focuses on investing in new trucks and trailers to improve its operational efficiency and reduce fuel costs. To this end, it aims at maintaining a relatively young fleet of trucks and trailers compared with the industry’s standard. The average age (as of Dec 31, 2020) for its truck and trailer fleet is 2 and 4 years, respectively.

Zacks Equity Research: WERN Page 3 of 8 Reasons To Sell: Despite freight demand having improved, Werner’s Truckload Transportation Services Weakness in the segment’s revenues continue to be weak. Revenues from the unit fell 2% year over year in Truckload Transportation the fourth quarter of 2020 due to 3.1% decline in average trucks in service. The same Services segment is declined 3.5% year over year in 2020 with 2.7% dip in average trucks in service. With this concerning. segment contributing the majority to the top line, total revenues decreased 3.7% in the same period.

Truck driver shortage continues to pose a challenge to Werner’s operations. In fact, the driver crisis has been aggravated by the coronavirus pandemic. With fewer drivers entering the industry amid coronavirus fears, hiring a new one may become difficult as old drivers retire.

Cash and equivalents stood at $29.33 million for Werner at the end of the December quarter, less than the long-term debt (net of current portion) figure of $175 million. This implies that the company does not have enough cash to meet its debt obligations.

Zacks Equity Research: WERN Page 4 of 8 Last Earnings Report

Earnings Beat at Werner Enterprises in Q4 Quarter Ending 12/2020

Werner reported fourth-quarter 2020 earnings (excluding a penny from non-recurring items) of 89 Report Date Feb 04, 2021 cents per share, surpassing the Zacks Consensus Estimate of 78 cents. Moreover, the bottom Sales Surprise 1.39% line surged 32.8% year over year. Reduced operating expenses aided the bottom line. EPS Surprise 14.10%

Total revenues of $620.3 million outperformed the Zacks Consensus Estimate of $611.8 million. Quarterly EPS 0.89 The top line was flat year over year, hurt by low fuel surcharge revenues. Annual EPS (TTM) 2.60

Operating income (adjusted) came in at $82.71 million in the reported quarter, up 30% year over year. Moreover, adjusted operating margin improved 310 basis points (bps) to 13.3%. Operating expenses dipped 3.1% to $538.85 million.

Segmental Results

Truckload Transportation Services (“TTS”) segment’s revenues fell 2% year over year to $475.04 million. The downside can be attributed to 35% decrease in fuel surcharge revenues and 3.1% decline in average trucks in service. Adjusted operating income ascended 32% to $79.87 million. Additionally, adjusted operating margin expanded 440 bps to 16.8%. Adjusted operating ratio (operating expenses as a percentage of revenues) improved 440 bps to 83.2%. Notably, lower the value of the metric, the better.

Werner Logistics segment’s revenues totaled $130.11 million, up 8% year over year due to 21% rise in intermodal logistics volume. The segment reported operating income of $2.63 million, down 22% from the year-ago period. Further, operating margin was 2%, reflecting a decrease of 80 bps from the fourth quarter of 2019. The Other segment accounted for the rest of the top line.

Liquidity

As of Dec 31, 2020, Werner had cash and cash equivalents of $29.33 million compared with $26.42 million at 2019 end. Long-term debt (net of current portion) totaled $175 million at the end of the fourth quarter compared with $225 million at 2019 end.

2021 Outlook

Werner anticipates TTS truck growth of 1-3% year over year in 2021. Additionally, it expects gains on sales of equipment to be in the range of $12 million-$15 million in the current year. Meanwhile, net capital expenditures are estimated in the band of $275 million-$300 million.

Zacks Equity Research: WERN Page 5 of 8 Recent News Collaboration With Hyliion Holdings — Apr 10, 2021

As part of a sustainability initiative, Werner, announced its participation in Hyliion Hypertruck Innovation Council in collaboration with Hyliion Holdings Corp. Werner will work with Hyliion to create opportunities for sustainable growth. With this collaboration, Werner will have the opportunity to drive Hyliion’s Hypertruck ERX with an electric powertrain fueled by renewable natural gas, which would help in reducing emissions and fuel costs.

Dividend Hike — Feb 25, 2021

Werner announced that its board of directors has declared 11.1% dividend increase to 10 cents per share (annualized : 40 cents). The dividend will be paid out to its shareholders on May 4, 2021 as of record date Apr 19.

Sale of Werner Global Logistics — Jan 28, 2021

Werner announced the sale of Werner Global Logistics (WGL) freight forwarding services to Scan Global Logistics Group. WGL’s freight forwarding business generated revenues of $53 million in 2020. The sale, expected to close on Feb 26, 2021, is anticipated to result in a gain of a penny per share in the first quarter of 2021. Meanwhile, Werner has entered into an agreement with Scan Global Logistics to provide its existing and future North American customers with comprehensive international logistics solutions.

Valuation

Werner shares are up 22.5% and 16.5% in the year-to-date period and over the trailing 12-month period respectively. Stocks in the Zacks sub- industry and the Zacks Transportation sector are up 24.9% and 7.3% in the year-to-date period, respectively. Over the past year, the Zacks sub- industry and the sector are up 70.4% and 63.5% respectively.

The S&P 500 index is up 11% and 50.7% in the year-to-date period and in the past year respectively.

The stock is currently trading at 14.37X forward 12-month price-to-earnings, which compares to 24.08X for the Zacks sub-industry, 27.7X for the Zacks sector and 22.9X for the S&P 500 index.

Over the past five years, the stock has traded as high as 31.51X and as low as 10.48X, with a 5-year median of 16.91X. Our Neutral recommendation indicates that the stock will perform in-line with the market. Our $48 price target reflects 14.95X forward 12-month earnings.

The table below shows summary valuation data for WERN

Zacks Equity Research: WERN Page 6 of 8 Industry Analysis Zacks Industry Rank: Top 28% (70 out of 254) Top Peers

Company (Ticker) Rec Rank

ArcBest Corporation (ARCB) Neutral

Covenant Logistics Group, Inc. (CVLG) Neutral

Forward Air Corporation (FWRD) Neutral

Landstar System, Inc. (LSTR) Neutral

Marten Transport, Ltd. (MRTN) Neutral

Old Dominion Freight Line, Inc. (ODFL) Neutral

Saia, Inc. (SAIA) Neutral

Universal Logistics Holdings, Inc. (ULH) Neutral

Industry Comparison Industry: Transportation - Truck Industry Peers

WERN X Industry S&P 500 ARCB ODFL SAIA

Zacks Recommendation (Long Term) Neutral - - Neutral Neutral Neutral

Zacks Rank (Short Term) - -

VGM Score - - Market Cap 3.26 B 1.66 B 30.14 B 1.78 B 28.96 B 6.22 B # of Analysts 8 5 12 6 8 8 Dividend Yield 0.83% 0.32% 1.25% 0.46% 0.32% 0.00% Value Score - - Cash/Price 0.01 0.03 0.06 0.20 0.02 0.00 EV/EBITDA 6.66 7.15 17.29 7.37 24.01 19.98 PEG Ratio 1.15 1.52 2.38 1.12 2.23 1.52 Price/Book (P/B) 2.78 2.31 4.06 2.15 8.74 6.43 Price/Cash Flow (P/CF) 7.19 8.36 17.06 8.80 30.99 22.89 P/E (F1) 14.52 18.43 22.05 17.09 34.06 35.19 Price/Sales (P/S) 1.38 1.65 3.46 0.61 7.21 3.41 Earnings Yield 6.60% 5.45% 4.40% 5.85% 2.94% 2.84% Debt/Equity 0.15 0.12 0.66 0.26 0.03 0.05 Cash Flow ($/share) 6.41 5.84 6.78 8.02 7.96 10.44 Growth Score - - Hist. EPS Growth (3-5 yrs) 20.38% 15.35% 9.39% 34.47% 25.11% 27.71% Proj. EPS Growth (F1/F0) 22.39% 29.71% 15.97% 26.99% 27.99% 29.11% Curr. Cash Flow Growth 6.32% 6.32% 0.72% 7.98% 7.45% 18.18% Hist. Cash Flow Growth (3-5 yrs) 6.94% 7.05% 7.37% 7.65% 14.72% 18.06% Current Ratio 1.67 1.50 1.39 1.50 3.33 0.99 Debt/Capital 12.77% 11.35% 41.19% 20.76% 2.92% 4.98% Net Margin 7.13% 5.07% 10.60% 2.42% 16.75% 7.59% Return on Equity 15.60% 11.23% 15.09% 10.79% 21.53% 15.38% Sales/Assets 1.12 1.15 0.51 1.63 0.96 1.17 Proj. Sales Growth (F1/F0) 7.32% 9.01% 7.53% 13.81% 16.86% 12.22% Momentum Score - - Daily Price Chg -3.98% -0.94% 1.24% 0.66% -0.38% 1.12% 1 Week Price Chg -0.10% 0.18% 1.43% 1.21% 0.84% 3.01% 4 Week Price Chg 2.49% 4.25% 7.02% 8.27% 5.38% 13.51% 12 Week Price Chg 10.63% 22.88% 15.76% 49.41% 26.95% 37.08% 52 Week Price Chg 18.01% 84.30% 58.99% 302.62% 92.36% 226.03% 20 Day Average Volume 526,826 206,696 1,778,154 166,784 613,995 162,440 (F1) EPS Est 1 week change 0.00% 0.00% 0.00% 0.12% 0.00% 0.00% (F1) EPS Est 4 week change -0.51% 0.50% 0.07% 0.24% 0.76% -0.19% (F1) EPS Est 12 week change 4.81% 6.53% 1.97% 7.37% 5.86% 6.49% (Q1) EPS Est Mthly Chg 0.32% 1.18% 0.00% 0.28% 2.05% 0.32%

Zacks Equity Research: WERN Page 7 of 8 Zacks Stock Rating System

We offer two rating systems that take into account investors' holding horizons: Zacks Rank and Zacks Recommendation. Each provides valuable insights into the future profitability of the stock and can be used separately or in combination with each other depending on your investment style.

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The Zacks Recommendation aims to predict performance over the next 6 to 12 months. The foundation for the quantitatively determined Zacks Recommendation is trends in the company's estimate revisions and earnings outlook. The Zacks Recommendation is broken down into 3 Levels; Outperform, Neutral and Underperform. Unlike many Wall Street firms, we have an excellent balance between the number of Outperform and Neutral recommendations. Our team of 70 analysts are fully versed in the benefits of earnings estimate revisions and how that is harnessed through the Zacks quantitative rating system. But we have given our analysts the ability to override the Zacks Recommendation for the 1200 stocks that they follow. The reason for the analyst over-rides is that there are often factors such as valuation, industry conditions and management effectiveness that a trained investment professional can spot better than a quantitative model.

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The Zacks Rank is our short-term rating system that is most effective over the one- to three-month holding horizon. The underlying driver for the quantitatively-determined Zacks Rank is the same as the Zacks Recommendation, and reflects trends in earnings estimate revisions.

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As an investor, you want to buy stocks with the highest probability of success. That means buying stocks with a Zacks Recommendation of Outperform, which also has a Style Score of an A or a B.

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This report contains independent commentary to be used for informational purposes only. The analysts contributing to this report do not hold any shares of this stock. The analysts contributing to this report do not serve on the board of the company that issued this stock.The EPS and revenue forecasts are the Zacks Consensus estimates, unless indicated otherwise on the reports first page. Additionally, the analysts contributing to this report certify that the views expressed herein accurately reflect the analysts personal views as to the subject securities and issuers. ZIR certifies that no part of the analysts compensation was, is, or will be, directly or indirectly, related to the specific recommendation or views expressed by the analyst in the report.

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ZIR uses the following rating system for the securities it covers. Outperform- ZIR expects that the subject company will outperform the broader U.S. equities markets over the next six to twelve months. Neutral- ZIR expects that the company will perform in line with the broader U.S. equities markets over the next six to twelve months. Underperform- ZIR expects the company will underperform the broader U.S. equities markets over the next six to twelve months.

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