We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
2 Air-Freight & Cargo Stocks to Watch in a Challenging Industry
Read MoreHide Full Article
Prospects of Zacks Transportation - Air Freight and Cargo industry’s participants are being dented by a weaker-than-expected demand environment. Concerns over slowing economic growth and supply-chain woes are other headwinds.
Despite the challenges mentioned above, we believe that the space still has fuel left in the tank, especially for operators that target growth opportunities and operating efficiency initiatives. Even though economies are reopening, consumers’ thirst for online shopping is rampant. Cost-cut efforts to drive the bottom line are commendable as well. In view of these favorable developments surrounding the space, we advise investors to focus on United Parcel Service (UPS - Free Report) and FedEx (FDX - Free Report) .
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 provide a range of supply-chain solutions, such as freight forwarding, customs brokerage, fulfillment, returns, financial transactions and repairs. The companies’ well-being in this industrial cohort is directly proportional to the health of the economy. Leading industry players, including UPS and FDX, 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 offer services to entities that outsource air cargo lifting needs.
4 Key Trends to Watch in the Transportation-Air Freight & Cargo Industry
Weak Demand Scenario: A Grave Concern: Due to the decline in shipping demand, particularly in Asia and Europe, volumes are being hurt. Lackluster volumes are hurting the results of key industry players like FDX. FDX reported lower-than-expected earnings per share (EPS) and revenues in second-quarter fiscal 2024 mainly due to demand woes. Another industry player — Air Transport Services (ATSG - Free Report) — is suffering due to weak demand for cargo aircraft. Owing to the soft demand scenario, management trimmed its 2023 EPS guidance. The projection for 2024 capital expenditures has also been slashed due to the airfreight demand softness. The conflict in Israel is also expected to hurt performance.
E-commerce Still a Force to Reckon With: It is hardly surprising that the growth pace of e-commerce demand has slowed from 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 growth of the industry players.
Supply-Chain Disruptions & High Costs: Although economic activities picked up from the pandemic gloom, supply-chain disruptions continue to dent stocks in the industry. Increased operating costs are also limiting bottom-line growth. Costs will likely continue to be steep going forward due to supply chain and labor troubles. Also, since fuel expenses represent a key input cost for any transportation player, operating expenses are on the way up, given the rise in fuel cost.
Focus on Cost-Cuts to Drive Bottom line: Despite signs of cooling inflation, we are by no means out of the woods. With inflation still above the Fed’s 2% target, more interest rate hikes in the near term cannot be ruled out. We note that the industry has been experiencing significant levels of inflation, including higher prices for labor, freight and fuel. The industry players are focusing on cost-cutting measures and making efforts to improve productivity and efficiency to mitigate high expenses and weaker-than-expected demand scenarios.
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 #241. This rank places it in the bottom 4% 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. The industry’s earnings estimate for 2024 has gone down 7.7% in the past year.
Despite the industry’s dim near-term prospects, 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 as well as the broader Transportation sector over the past year.
The industry has returned 2.6% over this period compared with the S&P 500’s rally of 25.2% and the broader sector’s appreciation of 13.2%.
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 10.37X compared with the S&P 500’s 13.86X. It is also lower than the sector’s trailing 12-month EV/EBITDA of 11.13X.
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)
2 Transportation-Air Freight and Cargo Stocks to Keep a Tab On
UPS: We are appreciative of UPS' efforts to reward 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 pre-pandemic levels.
UPS earnings outshined the Zacks Consensus Estimate in each of the last four quarters, the average beat being 2.35%. UPS’ shares have gained 2.3% in the past three months.
Price and Consensus: UPS
FedEx: FDX’s efforts to reward its shareholders even in these difficult times are praiseworthy. Apart from paying dividends, FDX is active on the buyback front. During the fiscal 2022, FedEx repurchased shares worth $2.2 billion. FedEx's liquidity position is also solid. FDX’s efforts to cut costs are driving the bottom line.
The company pays out a quarterly dividend of $1.26 ($5.04 annualized) per share, giving a 1.9% yield at the current stock price. FDX surpassed the Zacks Consensus Estimate for earnings in three of the last four quarters by an average of 12.34%.
Price and Consensus: FDX
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
2 Air-Freight & Cargo Stocks to Watch in a Challenging Industry
Prospects of Zacks Transportation - Air Freight and Cargo industry’s participants are being dented by a weaker-than-expected demand environment. Concerns over slowing economic growth and supply-chain woes are other headwinds.
Despite the challenges mentioned above, we believe that the space still has fuel left in the tank, especially for operators that target growth opportunities and operating efficiency initiatives. Even though economies are reopening, consumers’ thirst for online shopping is rampant. Cost-cut efforts to drive the bottom line are commendable as well. In view of these favorable developments surrounding the space, we advise investors to focus on United Parcel Service (UPS - Free Report) and FedEx (FDX - Free Report) .
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 provide a range of supply-chain solutions, such as freight forwarding, customs brokerage, fulfillment, returns, financial transactions and repairs. The companies’ well-being in this industrial cohort is directly proportional to the health of the economy. Leading industry players, including UPS and FDX, 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 offer services to entities that outsource air cargo lifting needs.
4 Key Trends to Watch in the Transportation-Air Freight & Cargo Industry
Weak Demand Scenario: A Grave Concern: Due to the decline in shipping demand, particularly in Asia and Europe, volumes are being hurt. Lackluster volumes are hurting the results of key industry players like FDX. FDX reported lower-than-expected earnings per share (EPS) and revenues in second-quarter fiscal 2024 mainly due to demand woes. Another industry player — Air Transport Services (ATSG - Free Report) — is suffering due to weak demand for cargo aircraft. Owing to the soft demand scenario, management trimmed its 2023 EPS guidance. The projection for 2024 capital expenditures has also been slashed due to the airfreight demand softness. The conflict in Israel is also expected to hurt performance.
E-commerce Still a Force to Reckon With: It is hardly surprising that the growth pace of e-commerce demand has slowed from 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 growth of the industry players.
Supply-Chain Disruptions & High Costs: Although economic activities picked up from the pandemic gloom, supply-chain disruptions continue to dent stocks in the industry. Increased operating costs are also limiting bottom-line growth. Costs will likely continue to be steep going forward due to supply chain and labor troubles. Also, since fuel expenses represent a key input cost for any transportation player, operating expenses are on the way up, given the rise in fuel cost.
Focus on Cost-Cuts to Drive Bottom line: Despite signs of cooling inflation, we are by no means out of the woods. With inflation still above the Fed’s 2% target, more interest rate hikes in the near term cannot be ruled out. We note that the industry has been experiencing significant levels of inflation, including higher prices for labor, freight and fuel. The industry players are focusing on cost-cutting measures and making efforts to improve productivity and efficiency to mitigate high expenses and weaker-than-expected demand scenarios.
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 #241. This rank places it in the bottom 4% 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. The industry’s earnings estimate for 2024 has gone down 7.7% in the past year.
Despite the industry’s dim near-term prospects, 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 as well as the broader Transportation sector over the past year.
The industry has returned 2.6% over this period compared with the S&P 500’s rally of 25.2% and the broader sector’s appreciation of 13.2%.
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 10.37X compared with the S&P 500’s 13.86X. It is also lower than the sector’s trailing 12-month EV/EBITDA of 11.13X.
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)
2 Transportation-Air Freight and Cargo Stocks to Keep a Tab On
Both stocks carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
UPS: We are appreciative of UPS' efforts to reward 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 pre-pandemic levels.
UPS earnings outshined the Zacks Consensus Estimate in each of the last four quarters, the average beat being 2.35%. UPS’ shares have gained 2.3% in the past three months.
Price and Consensus: UPS
FedEx: FDX’s efforts to reward its shareholders even in these difficult times are praiseworthy. Apart from paying dividends, FDX is active on the buyback front. During the fiscal 2022, FedEx repurchased shares worth $2.2 billion. FedEx's liquidity position is also solid. FDX’s efforts to cut costs are driving the bottom line.
The company pays out a quarterly dividend of $1.26 ($5.04 annualized) per share, giving a 1.9% yield at the current stock price. FDX surpassed the Zacks Consensus Estimate for earnings in three of the last four quarters by an average of 12.34%.
Price and Consensus: FDX