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On Oct 16, 2013 we maintained our Neutral recommendation on third party logistics service provider Expeditors International of Washington Inc. (EXPD - Analyst Report). We believe that over the long term, the company will outperform its peers based on its strategic initiatives, superior business and growing supply chains. However, sluggish economic growth and weak consumer and business demand might hurt the company’s revenues. This Seattle-based company holds a Zacks Rank #2 (Buy).

Why Maintained?

Expeditors has a strong foothold in the international freight forwarding business, in particular airfreight. Continued strength in the airfreight business owing to growing trade activity between the U.S. and China and the launch of several electronic products including the popular iPhone 5S and Samsung Galaxy Note III are likely to support Expeditors revenue growth.

The company is trying to expand in the high-margin customs-brokerage business to tap the growing global trade and increased import-export activity. In addition to oil and gas as well as defense, recovery in the housing and construction business will add an opportunity for growth.

The company’s asset light business model allows it to maintain a debt-free balance sheet, which we believe will enhance its investment plans thus providing higher returns to its shareholders.

However, weak demand from consumers and businesses remains a headwind for Expeditors which earns a major portion of the revenue from customers in industries with shipping patterns tied closely to consumer demand. A sluggish pace of economic growth is only expected to aggravate the problem.

Moreover, if the company fails to pass on the higher costs to customers, the company’s margins could be hurt. Higher freight rates charged by third party carriers could also have a negative impact on the company’s bottom line. We thus remain sidelined on the company.

Other Stocks

Other stocks that are worth considering within this sector are Radiant Logistics Inc. (RLGT - Snapshot Report) Amerco Inc. (UHAL) Student Transportation Inc. (STB - Snapshot Report). RLGT and UHAL currently hold a Zacks Rank #1 (Strong Buy), while STB carries a Zacks Rank #2 (Buy).

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