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Basch Report
Jax Daily Record Tuesday, Sep. 5, 201707:00 AM EST

Harvey sends Landstar higher

Investors expect company to profit from recovery effort.
by: Mark Basch Contributing Writer

Certainly, Wall Street traders had some sympathy watching the devastating impact of Hurricane Harvey on the Houston area.

However, that doesn’t stop them from taking advantage of an opportunity.

One industry that likely will profit from the storm’s aftermath is trucking, because of the need to transport supplies and equipment to the affected areas.

Jacksonville-based Landstar System Inc., which has been called on for hurricane relief efforts in the past, is one of a handful of trucking companies seen as having the capacity to handle the Harvey recovery. That sentiment sent Landstar’s stock to a record high last week.

After rising $6.20 over three trading days to $88, Landstar jumped as much as $5.30 on Wednesday alone to a record high of $93.30. It reached a new high of $94.60 Friday.

Stephens analyst Jack Atkins upgraded his rating of Landstar from “equal weight” to “overweight” Wednesday. Atkins said the hurricane impact was not “core” to his analysis of Landstar, but he did address the impact in his research note.

“Historically when a hurricane makes landfall in the U.S., Landstar’s stock reacts positively given the company’s flatbed business and the expectation for additional flatbed capacity needs to remove debris and also transport supplies for the rebuilding/recovery effort,” he said.

Landstar’s stock has risen in the two months following 13 of the last 14 major hurricanes or large tropical storms to make landfall in the U.S., Atkins said, with an average gain of 15 percent. The one exception was Hurricane Ike, which hit in 2008 during the recession.

“We believe the recent tragic weather event in South Texas could provide additional near-term stock price appreciation given the tight flatbed capacity that existed in the Texas market prior to this event and the necessary cleanup and rebuilding efforts that will occur over the next several months,” he said.

However, Atkins likes Landstar’s prospects for other reasons beyond Harvey relief.

“With truckload capacity tightening and the expectation for a strong peak season, we believe Landstar is well-positioned for both volume and rate gains given its leverage to the truckload spot market and unique business model,” he said.

Landstar is unique because it doesn’t own trucks or employ drivers, but contracts with drivers who own their own trucks to transport freight through a network of agents.

Even after the stock reached record heights last week, Atkins says it could go even higher, with a target price of $103.

Regency sees little Harvey damage

Jacksonville-based shopping center developer Regency Centers Corp. said Thursday that its initial inspection showed no significant damage to its Houston-area centers because of Harvey.

Regency's properties, which are mainly anchored by grocery stores, had “minimal water intrusion and minor roof leaks.”

The company said all the grocery stores in its centers are “operational.”

Regency, which owns or operates more than 400 shopping centers across the country, lists 12 properties in the Houston area on its website.

Shoe Carnival jumps on earnings

Shoe Carnival Inc.’s stock jumped higher Thursday the more conventional way: it reported earnings that were higher than analysts’ expectations.

The footwear chain controlled by former Jacksonville Jaguars owner Wayne Weaver reported earnings of 24 cents a share for the second quarter ended July 29, 2 cents higher than last year and 4 cents higher than the average forecast of analysts.

That sent the stock up $3.68 to $20.10 Thursday.

Total sales rose 1.4 percent to $235.1 million and comparable-store sales (sales at stores open for more than one year) rose 0.4 percent.

CEO Cliff Sifford said in Shoe Carnival’s conference call with analysts that the third quarter is off to a strong start, with comparable-store sales up 7 percent in August.

August is back-to-school season, and Sifford said factors including a shift in some states’ sales tax holidays for school supplies and changing school calendars impacted sales trends.

Shoe Carnival operates 419 stores in 35 states and Puerto Rico. The company continues to open new stores but will end fiscal 2017 with a net decline in the number of stores, as it expects to open 19 new locations but close 25 to 27 stores this year.

“As we have stated in the past, if we are unable to improve the store's performance, we will close the store to enhance future shareholder value,” Sifford said.

Shoe Carnival is looking at the performance of another 30 to 35 stores that could be closed next year if their performance doesn’t pick up, while 2018 store openings “will be in the low single-digit range,” Sifford said.

“Even though this would reduce our overall sales volume, we would realize long-term improvement in operating income and EPS,” he said.

“We remain committed to long term strategic store growth. However, with the changing landscape in brick-and-mortar stores, we believe more attractive real estate opportunities will be available to us if we exercise patience.”

Weaver is chairman of Evansville, Indiana-based Shoe Carnival and its largest shareholder. He and his wife, Delores, control 28.6 percent of the stock.

Creative Learning reports loss

St. Augustine-based Creative Learning Corp. last week reported a net loss of $831,524, or 7 cents a share, for its third quarter ended June 30.

Creative Learning offers educational and enrichment programs for children through franchisees.

The company said in a news release that royalties decreased because of “the loss of some franchisees that the company has not been able to replace with the sales of new franchises.”

Change in Dick’s Wings control

ARC Group Inc. President and Chief Financial Officer Seenu Kasturi acquired a controlling interest in the company after buying shares from its largest stockholder, according to a Securities and Exchange Commission filing last week.

Kasturi owned 9.9 percent of the stock of Jacksonville-based ARC Group, operator of the Dick’s Wings & Grill restaurant chain. He increased his stake to 48.3 percent by acquiring about 2.6 million shares owned by investor William Leopold.

Leopold acquired most of his shares in 2012 from the company’s former chief executive officer, Michael Rosenberger.

Current CEO Richard Akam owned 242,720 shares, or 3.5 percent of the stock, according to ARC Group’s annual report.

Harrison cites ‘profound’ changes

In his most recent communication with the U.S. Surface Transportation Board, CSX Corp. Chief Executive Hunter Harrison said the railroad's recent service issues are a result of “profound, transformational changes” in its operations.

Harrison is implementing a new operating system which he calls Precision Scheduled Railroading.

“Changes of this magnitude tend to give rise to temporary challenges,” Harrison said in the Aug. 24 letter, which was released by the STB last week.

“We recognize that congestion has impacted traffic flows at various western corridor terminals during parts of July and August, and intermittent service issues have occurred elsewhere on our network. CSX has been and will continue to address remaining congestion, and has renewed efforts to inform customers during our implementation of PSR,” he said.

CSX’s rail network runs throughout the eastern half of the U.S.

“Going forward, we expect our hard work on terminal efficiency, traffic flow adjustment and transit time to bring about enhanced service,” Harrison said.

Jacksonville-based CSX has been under intense scrutiny by the STB over the last two months as complaints about poor service have mounted. The agency will hold a “Listening Session” next week for CSX customers to discuss their complaints with the railroad.

“We look forward to participating in your upcoming listening session scheduled for Sept. 12,” Harrison said in the letter.

TapImmune trials progressing

TapImmunine Inc., a Jacksonville-based immuno-oncology company developing immunotherapies to treat cancer, said last week it is making progress on several clinical trials in process.

“We expect to deliver on multiple substantive clinical milestones across our entire pipeline over the next 18 months, and we are optimistic that this continued clinical execution should lead to several catalysts for the company and its shareholders over the coming quarters.” CEO Glynn Wilson said in a news release.

TapImmune has no products on the market yet, meaning it has no revenue. The company reported a net loss of $1.9 million, or 22 cents a share, for the second quarter.

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