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3 Transport-Services Stocks to Watch Amid Industry Concerns
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The extreme volatility in 2022 dented the Zacks Transportation-Services industry big time. Supply-chain woes continue to cast a shadow over the prospects of transport service providers.
However, despite this gloom, freight demand has been impressive as economic activities gain pace following the easing of COVID-related restrictions. Stocks like Expeditors International of Washington (EXPD - Free Report) , Hub Group (HUBG - Free Report) and Universal Logistics (ULH - Free Report) are well-positioned to capitalize on this healthy demand environment.
About the Industry
The companies belonging to the Zacks Transportation-Services industry offer transporters logistics, leasing and maintenance services. Some industry players focus on the business of global logistics management, including international freight forwarding. Third-party logistics entities provide innovative supply-chain solutions. They also focus on services like product sourcing, warehousing and freight shipping. The companies have expertise in trucking, air and ocean transportation. Additionally, some players in this industry deliver domestic and international express delivery services. The well-being of the companies in this industrial cohort is directly proportional to the health of the economy. An uptick in manufactured and retail goods, favorable pricing and improvement in global economic conditions bode well for the industry participants.
4 Trends Shaping the Future of the Transportation-Services Industry
Strong Financial Returns for Shareholders: With economic activities gaining pace, more and more companies are allocating their increasing cash pile by way of dividends and buybacks to pacify the long-suffering shareholders, thereby underlining their financial strength and confidence in business. Among the Transportation - Services industry players, Expeditors announced a 15.5% hike in its quarterly dividend in May 2022, taking the total of its semi-annual cash dividend payout to 67 cents per share.
Freight Demand Remains Impressive:Owing to the gradual recovery in economic activities, freight demand continues to be strong despite minor hiccups. This supports growth of transport service providers. Despite the Cass Freight shipments Index declining 0.4% year over year in November, the overall improving trend is evident from the fact that the measure has improved year over year in six (February, March, July, August, September and October) of the 11 months of 2022 reported so far.
Bottom Line Suffers Due to Oil Price Increase: Even though oil price has declined from its multi-year highs due to recession fears, it remains high. Notably, oil prices increased 5.7% in the first nine months of 2022, induced by the Russia-Ukraine war. Fuel expenses represent a key input cost for any transportation player. Naturally, operating expenses are on the way up, mainly due to the uptick in fuel costs. For example, at Expeditors, operating costs increased 23.3% year over year in the first nine months of 2022.
Economic Uncertainties a Woe: To tame the sky-high inflation in the United States, the Fed adopted a hawkish stance. To combat the four-decade-high inflation, the Fed raised interest rates multiple times in 2022. Further rate hikes are likely in 2023 as well. Higher interest rates shoot up the cost of borrowing, escalating the chances of an economic slowdown. The increased cost of borrowing implies that the market turmoil witnessed in 2022 is likely to continue in 2023 as well. Risks associated with the economic slowdown, geopolitical tensions and supply-chain woes are hurting the prospects of stocks belonging to this industrial cohort.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Transportation - Services industry is a 27-stock group within the broader Zacks Transportation sector. The industry currently carries a Zacks Industry Rank #182, which places it in the bottom 27% of 250 plus Zacks industries.
The group’s Zacks Industry Rank, the average of the Zacks Rank of all member stocks, indicates dismal near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group’s earnings growth potential. The industry's earnings estimate for 2023 has decreased 14.2% on a year-over-year basis.
Before we present a few stocks from the industry that you may want to consider, let’s take a look at the industry’s recent stock market performance and the valuation picture.
Industry Lags S&P 500 and Sector
The Zacks Transportation-Services industry has underperformed the Zacks S&P 500 composite and the broader Transportation sector over the past year.
The industry has declined 19.5% over this period compared with the S&P 500's depreciation of 18.5% and the broader sector’s plunge of 14.5%.
One-Year Price Performance
Industry's Current Valuation
Based on the forward 12-month price-to-sales, a commonly used multiple for valuing Transportation-services stocks, the industry is currently trading at 1.72X compared with the S&P 500's 3.42X. The value is, however, higher than the sector's trailing 12-month P/S of 1.60X.
Over the past five years, the industry has traded as high as 2.30X, as low as 1.40X and at the median of 1.93X.
Price-to-Sales Ratio (F12M)
3 Transport Services Stocks to Watch
Expeditors currently carries a Zacks Rank #3 (Hold). This Seattle, WA-based freight forwarder is being bolstered by strong air-freight revenues. Efforts to reward its shareholders are commendable as well.
Expeditors has a highly impressive earnings track record. The bottom line surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average being 20.32%. The stock has witnessed a 1.23% upward revision of the Zacks Consensus Estimate for current-year earnings over the past 60 days.
Hub Group offers transportation services (mainly intermodal, truckload, less-than-truckload, flatbed, temperature-controlled, and dedicated and regional trucking, as well as final mile, railcar, small parcel and international) and logistics management services in North America.
HUBG is being aided by the gradual improvement in freight market conditions. HUBG has an impressive earnings track record. The bottom line surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average being 44.86%. HUBG's strong customer base and growth by acquisition strategy also bode well. Hub Group currently carries a Zacks Rank #3.
Price and Consensus: HUBG
Universal Logistics, currently carrying a Zacks Rank #3, is a provider of customized transportation and logistics solutions. The company offers services across its entire supply chain, including truckload, brokerage, intermodal, dedicated and value-added services.
Owing to the uptick in economic activities, the contract logistics and intermodal segments of ULH are performing well, in turn boosting top-line growth. The Zacks Consensus Estimate for current-year earnings has been revised 5.8% upward over the past 60 days. The favorable estimate revisions reflect the confidence of brokers in the stock.
Price and Consensus : ULH
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3 Transport-Services Stocks to Watch Amid Industry Concerns
The extreme volatility in 2022 dented the Zacks Transportation-Services industry big time. Supply-chain woes continue to cast a shadow over the prospects of transport service providers.
However, despite this gloom, freight demand has been impressive as economic activities gain pace following the easing of COVID-related restrictions. Stocks like Expeditors International of Washington (EXPD - Free Report) , Hub Group (HUBG - Free Report) and Universal Logistics (ULH - Free Report) are well-positioned to capitalize on this healthy demand environment.
About the Industry
The companies belonging to the Zacks Transportation-Services industry offer transporters logistics, leasing and maintenance services. Some industry players focus on the business of global logistics management, including international freight forwarding. Third-party logistics entities provide innovative supply-chain solutions. They also focus on services like product sourcing, warehousing and freight shipping. The companies have expertise in trucking, air and ocean transportation. Additionally, some players in this industry deliver domestic and international express delivery services. The well-being of the companies in this industrial cohort is directly proportional to the health of the economy. An uptick in manufactured and retail goods, favorable pricing and improvement in global economic conditions bode well for the industry participants.
4 Trends Shaping the Future of the Transportation-Services Industry
Strong Financial Returns for Shareholders: With economic activities gaining pace, more and more companies are allocating their increasing cash pile by way of dividends and buybacks to pacify the long-suffering shareholders, thereby underlining their financial strength and confidence in business. Among the Transportation - Services industry players, Expeditors announced a 15.5% hike in its quarterly dividend in May 2022, taking the total of its semi-annual cash dividend payout to 67 cents per share.
Freight Demand Remains Impressive:Owing to the gradual recovery in economic activities, freight demand continues to be strong despite minor hiccups. This supports growth of transport service providers. Despite the Cass Freight shipments Index declining 0.4% year over year in November, the overall improving trend is evident from the fact that the measure has improved year over year in six (February, March, July, August, September and October) of the 11 months of 2022 reported so far.
Bottom Line Suffers Due to Oil Price Increase: Even though oil price has declined from its multi-year highs due to recession fears, it remains high. Notably, oil prices increased 5.7% in the first nine months of 2022, induced by the Russia-Ukraine war. Fuel expenses represent a key input cost for any transportation player. Naturally, operating expenses are on the way up, mainly due to the uptick in fuel costs. For example, at Expeditors, operating costs increased 23.3% year over year in the first nine months of 2022.
Economic Uncertainties a Woe: To tame the sky-high inflation in the United States, the Fed adopted a hawkish stance. To combat the four-decade-high inflation, the Fed raised interest rates multiple times in 2022. Further rate hikes are likely in 2023 as well. Higher interest rates shoot up the cost of borrowing, escalating the chances of an economic slowdown. The increased cost of borrowing implies that the market turmoil witnessed in 2022 is likely to continue in 2023 as well. Risks associated with the economic slowdown, geopolitical tensions and supply-chain woes are hurting the prospects of stocks belonging to this industrial cohort.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Transportation - Services industry is a 27-stock group within the broader Zacks Transportation sector. The industry currently carries a Zacks Industry Rank #182, which places it in the bottom 27% of 250 plus Zacks industries.
The group’s Zacks Industry Rank, the average of the Zacks Rank of all member stocks, indicates dismal near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group’s earnings growth potential. The industry's earnings estimate for 2023 has decreased 14.2% on a year-over-year basis.
Before we present a few stocks from the industry that you may want to consider, let’s take a look at the industry’s recent stock market performance and the valuation picture.
Industry Lags S&P 500 and Sector
The Zacks Transportation-Services industry has underperformed the Zacks S&P 500 composite and the broader Transportation sector over the past year.
The industry has declined 19.5% over this period compared with the S&P 500's depreciation of 18.5% and the broader sector’s plunge of 14.5%.
One-Year Price Performance
Industry's Current Valuation
Based on the forward 12-month price-to-sales, a commonly used multiple for valuing Transportation-services stocks, the industry is currently trading at 1.72X compared with the S&P 500's 3.42X. The value is, however, higher than the sector's trailing 12-month P/S of 1.60X.
Over the past five years, the industry has traded as high as 2.30X, as low as 1.40X and at the median of 1.93X.
Price-to-Sales Ratio (F12M)
3 Transport Services Stocks to Watch
Expeditors currently carries a Zacks Rank #3 (Hold). This Seattle, WA-based freight forwarder is being bolstered by strong air-freight revenues. Efforts to reward its shareholders are commendable as well.
Expeditors has a highly impressive earnings track record. The bottom line surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average being 20.32%. The stock has witnessed a 1.23% upward revision of the Zacks Consensus Estimate for current-year earnings over the past 60 days.
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here
Price and Consensus: EXPD
Hub Group offers transportation services (mainly intermodal, truckload, less-than-truckload, flatbed, temperature-controlled, and dedicated and regional trucking, as well as final mile, railcar, small parcel and international) and logistics management services in North America.
HUBG is being aided by the gradual improvement in freight market conditions. HUBG has an impressive earnings track record. The bottom line surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average being 44.86%. HUBG's strong customer base and growth by acquisition strategy also bode well. Hub Group currently carries a Zacks Rank #3.
Price and Consensus: HUBG
Universal Logistics, currently carrying a Zacks Rank #3, is a provider of customized transportation and logistics solutions. The company offers services across its entire supply chain, including truckload, brokerage, intermodal, dedicated and value-added services.
Owing to the uptick in economic activities, the contract logistics and intermodal segments of ULH are performing well, in turn boosting top-line growth. The Zacks Consensus Estimate for current-year earnings has been revised 5.8% upward over the past 60 days. The favorable estimate revisions reflect the confidence of brokers in the stock.
Price and Consensus : ULH