Floor & Decor Holdings (NYSE:FND) shares tumbled more than 4% Monday after Wedbush said in a note that the company has the most potential downside stemming from the Red Sea risks and soaring ocean shipping costs.
Analysts told investors that "twin crises at the Suez and Panama Canals have resulted in more US-bound ocean freight traffic diverting to the West Coast, resulting in much higher prices for these routes that we believe are most important to our covered companies."
The analysts note that while rates remain far below pandemic highs, spot rates for Far East to West Coast routes are now up 140% year-on-year.
"Given the amount of uncertainty, we believe it is prudent to evaluate the potential risks if rates remain elevated through the spring when contracted rates are typically reset," said the analysts.
"On average, we estimate ~60 bps of margin downside across our coverage and see Floor & Decor (FND-OP) with the most downside risk (120 bps) as it has a significant amount of merchandise imported that is also bulky and highly price competitive," they added.
Wedbush believes larger volume shippers are less likely to incur surcharges but see a higher likelihood of pressure on their smaller downstream suppliers, which they feel could result in price hikes getting passed through the value chain.