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3 Air-Freight & Cargo Stocks to Watch Amid Industry Challenges
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The weaker-than-expected demand environment is dragging down Zacks Transportation - Air Freight and Cargo industry players’ financial performance. Concerns over slowing economic growth and supply-chain woes are too playing their part.
Despite investor skepticism associated with these macro challenges, fortunately, there are certain companies that have held up better than others. We believe United Parcel Service (UPS - Free Report) , FedEx Corporation (FDX - Free Report) and GXO Logistics (GXO - Free Report) should be able to weather the current environment and be on an investor’s radar mainly owing to their operating efficiencies.
About the Industry
The companies housed in the Zacks Transportation - Air Freight and Cargo industry provide air delivery and freight services. Most players in the space are involved in offering specialized transportation and logistics services. Some participants offer a range of supply-chain solutions, such as freight forwarding, customs brokerage, fulfillment, returns, financial transactions and repairs. The well-being of the companies in this industrial cohort is directly proportional to the health of the economy. Leading industry players, including FDX and UPS, transport millions of packages each day across the globe. Apart from operating a ground fleet of multiple vehicles, some of these companies maintain an air fleet. While some players focus on providing air transportation services for passengers and cargo, others deliver services to entities that outsource air-cargo lifting requirements.
4 Key Investing Trends to Watch in the Transportation-Air Freight & Cargo Industry
Economic Uncertainty: The industry has been experiencing significant levels of inflation, including higher prices for labor, freight and fuel. Agreed that signs of easing inflation have brought some sort of relief for U.S. stock markets but the fact remains that we are far from being out of the woods. Most market watchers believe that the Fed will resume its rate hikes as expected at its next meeting slated for Jul 25-26. The recent production cut by the OPEC+ oil cartel, which includes OPEC members plus Russia, may aggravate inflationary pressure and result in heightened economic uncertainty and market volatility, resulting in a further decline in shipping demand. Volumes may also be hurt, thus affecting industry players.
Supply-Chain Woes & High Costs:Supply-chain disturbances and a tight labor market are ailing Air Freight and Cargo Industry players. Higher labor and transportation costs are aggravating their woes. Shortage of labor represents a major challenge for the industry participants. Costs will likely continue to be steep going forward due to supply-chain troubles. The spike in fuel costs is also increasing the operating expenses of the industry players. Even though oil price has declined from its multi-year highs, it remains at an elevated level.
E-commerce Still a Force to Reckon With:It is hardly surprising that the pace of growth of e-commerce demand has slowed from the levels witnessed at the peak of the pandemic, with the reopening of economies. However, it remains impressive, driven by the convenience associated with online shopping. The race to digitization also supports the momentum in e-commerce growth. E-commerce demand strength should continue to support the growth of the industry players.
Strong 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 long-suffering shareholders, thereby underlining their financial strength and confidence in business. Among the Transportation – Air Freight and Cargo industry players, UPS and FedEx have announced dividend hikes this year.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Air Freight and Cargo industry, housed within the broader Zacks Transportation sector, currently carries a Zacks Industry Rank #223. This rank places it in the bottom 11% of more than 250 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 outperform 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 becoming pessimistic about this group’s earnings growth potential. While the industry’s earnings estimates for 2023 have gone down 27% in the past year, the same for 2024 have fallen 22.7% over the said timeframe.
Despite the dim near-term prospects of the industry, we will present a few stocks that you may want to consider for your portfolio. But it’s worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Lags S&P 500 and Sector
The Zacks Air Freight and Cargo industry has underperformed the Zacks S&P 500 composite and the broader Transportation sector over the past year.
The industry has gained 5% over this period compared with the S&P 500’s rise of 17.7% and the broader sector’s appreciation of 13%.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month enterprise value-to-EBITDA (EV/EBITDA), a commonly used multiple for valuing Transportation-Air Freight and Cargo stocks, the industry is currently trading at 9.57X compared with the S&P 500’s 13.73X. It is also lower than the sector’s trailing 12-month EV/EBITDA of 10.77X.
Over the past five years, the industry has traded as high as 13.58X, as low as 6.64X and at the median of 9.59X.
Enterprise Value-to-EBITDA Ratio (TTM)
3 Transportation-Air Freight and Cargo Stocks to Keep a Tab On
UPS: We are appreciative of UPS' efforts to reward its shareholders through dividends and buybacks. Robust free cash flow generation by UPS is a major positive and is leading to an uptick in shareholder-friendly activities. Even though the demand for online shopping has slowed down from the pandemic peak with the reopening of the economy, the figures are still higher than the pre-pandemic levels.
UPS earnings outshined the Zacks Consensus Estimate in each of the last four quarters, the average beat being 2.91%. UPS shares have gained 3.5% over the past six months. UPS currently carries a Zacks Rank #3 (Hold).
FedEx: Its efforts to reward its shareholders even in these difficult times are praiseworthy. FDX is also active on the buyback front. During fiscal 2022, FedEx repurchased shares worth $2.2 billion. FedEx's liquidity position is also solid. FDX’s efforts to cut costs are driving its bottom line.
Despite the global weakness, FDX's fourth-quarter fiscal 2023 earnings per share exceeded expectations, driven by its cost-cutting measures. FDX shares have gained 36.8% over the past six months. FDX currently carries a Zacks Rank #3.
Price and Consensus: FDX
GXO Logistics: We are impressed by GXO’s efforts to strengthen its logistics capabilities. The rapid growth of e-commerce, automation and outsourcing is serving the company well.
GXO’s earnings outshined the Zacks Consensus Estimate in each of the last four quarters, the average beat being 9.56%. UPS shares have gained 22.2% over the past six months. GXO currently carries a Zacks Rank #3.
Price and Consensus: GXO
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3 Air-Freight & Cargo Stocks to Watch Amid Industry Challenges
The weaker-than-expected demand environment is dragging down Zacks Transportation - Air Freight and Cargo industry players’ financial performance. Concerns over slowing economic growth and supply-chain woes are too playing their part.
Despite investor skepticism associated with these macro challenges, fortunately, there are certain companies that have held up better than others. We believe United Parcel Service (UPS - Free Report) , FedEx Corporation (FDX - Free Report) and GXO Logistics (GXO - Free Report) should be able to weather the current environment and be on an investor’s radar mainly owing to their operating efficiencies.
About the Industry
The companies housed in the Zacks Transportation - Air Freight and Cargo industry provide air delivery and freight services. Most players in the space are involved in offering specialized transportation and logistics services. Some participants offer a range of supply-chain solutions, such as freight forwarding, customs brokerage, fulfillment, returns, financial transactions and repairs. The well-being of the companies in this industrial cohort is directly proportional to the health of the economy. Leading industry players, including FDX and UPS, transport millions of packages each day across the globe. Apart from operating a ground fleet of multiple vehicles, some of these companies maintain an air fleet. While some players focus on providing air transportation services for passengers and cargo, others deliver services to entities that outsource air-cargo lifting requirements.
4 Key Investing Trends to Watch in the Transportation-Air Freight & Cargo Industry
Economic Uncertainty: The industry has been experiencing significant levels of inflation, including higher prices for labor, freight and fuel. Agreed that signs of easing inflation have brought some sort of relief for U.S. stock markets but the fact remains that we are far from being out of the woods. Most market watchers believe that the Fed will resume its rate hikes as expected at its next meeting slated for Jul 25-26. The recent production cut by the OPEC+ oil cartel, which includes OPEC members plus Russia, may aggravate inflationary pressure and result in heightened economic uncertainty and market volatility, resulting in a further decline in shipping demand. Volumes may also be hurt, thus affecting industry players.
Supply-Chain Woes & High Costs:Supply-chain disturbances and a tight labor market are ailing Air Freight and Cargo Industry players. Higher labor and transportation costs are aggravating their woes. Shortage of labor represents a major challenge for the industry participants. Costs will likely continue to be steep going forward due to supply-chain troubles. The spike in fuel costs is also increasing the operating expenses of the industry players. Even though oil price has declined from its multi-year highs, it remains at an elevated level.
E-commerce Still a Force to Reckon With:It is hardly surprising that the pace of growth of e-commerce demand has slowed from the levels witnessed at the peak of the pandemic, with the reopening of economies. However, it remains impressive, driven by the convenience associated with online shopping. The race to digitization also supports the momentum in e-commerce growth. E-commerce demand strength should continue to support the growth of the industry players.
Strong 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 long-suffering shareholders, thereby underlining their financial strength and confidence in business. Among the Transportation – Air Freight and Cargo industry players, UPS and FedEx have announced dividend hikes this year.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Air Freight and Cargo industry, housed within the broader Zacks Transportation sector, currently carries a Zacks Industry Rank #223. This rank places it in the bottom 11% of more than 250 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 outperform 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 becoming pessimistic about this group’s earnings growth potential. While the industry’s earnings estimates for 2023 have gone down 27% in the past year, the same for 2024 have fallen 22.7% over the said timeframe.
Despite the dim near-term prospects of the industry, we will present a few stocks that you may want to consider for your portfolio. But it’s worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Lags S&P 500 and Sector
The Zacks Air Freight and Cargo industry has underperformed the Zacks S&P 500 composite and the broader Transportation sector over the past year.
The industry has gained 5% over this period compared with the S&P 500’s rise of 17.7% and the broader sector’s appreciation of 13%.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month enterprise value-to-EBITDA (EV/EBITDA), a commonly used multiple for valuing Transportation-Air Freight and Cargo stocks, the industry is currently trading at 9.57X compared with the S&P 500’s 13.73X. It is also lower than the sector’s trailing 12-month EV/EBITDA of 10.77X.
Over the past five years, the industry has traded as high as 13.58X, as low as 6.64X and at the median of 9.59X.
Enterprise Value-to-EBITDA Ratio (TTM)
3 Transportation-Air Freight and Cargo Stocks to Keep a Tab On
UPS: We are appreciative of UPS' efforts to reward its shareholders through dividends and buybacks. Robust free cash flow generation by UPS is a major positive and is leading to an uptick in shareholder-friendly activities. Even though the demand for online shopping has slowed down from the pandemic peak with the reopening of the economy, the figures are still higher than the pre-pandemic levels.
UPS earnings outshined the Zacks Consensus Estimate in each of the last four quarters, the average beat being 2.91%. UPS shares have gained 3.5% over the past six months. UPS currently carries a Zacks Rank #3 (Hold).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: UPS
FedEx: Its efforts to reward its shareholders even in these difficult times are praiseworthy. FDX is also active on the buyback front. During fiscal 2022, FedEx repurchased shares worth $2.2 billion. FedEx's liquidity position is also solid. FDX’s efforts to cut costs are driving its bottom line.
Despite the global weakness, FDX's fourth-quarter fiscal 2023 earnings per share exceeded expectations, driven by its cost-cutting measures. FDX shares have gained 36.8% over the past six months. FDX currently carries a Zacks Rank #3.
Price and Consensus: FDX
GXO Logistics: We are impressed by GXO’s efforts to strengthen its logistics capabilities. The rapid growth of e-commerce, automation and outsourcing is serving the company well.
GXO’s earnings outshined the Zacks Consensus Estimate in each of the last four quarters, the average beat being 9.56%. UPS shares have gained 22.2% over the past six months. GXO currently carries a Zacks Rank #3.
Price and Consensus: GXO