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On Jan 10, 2014 we maintained our Neutral recommendation on third party logistics service provider Expeditors International of Washington Inc. (EXPD - Analyst Report). We believe that the company will perform well owing to its strategic initiatives, superior business and growing supply chains. However, stiff competition and weak consumer and business demand might hurt the company’s revenues. This Seattle-based company holds a Zacks Rank #3 (Hold).

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 shipping of several electronic products including the popular iPhone 5S and Samsung Galaxy Note III are likely to support Expeditors’ revenue growth.

The company is expanding its 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.

We remain encouraged by airfreight margin which is likely to be strong, given the rebound in airfreight business. Expeditors is undertaking cost control measures, which will further boost its margins.

However, weak demand from consumers and businesses remains a headwind for Expeditors. Global airfreight business continues to be affected by the size of consumer products and the timing of its launches. This could led to rate volatility as third party carriers try to arrange within their available capacity during high demand periods.

Moreover, the company’s margin will depend on its ability to pass on the higher costs to its customers. Higher freight rates charged by third party carriers could also have a negative impact on the company’s bottom line. We thus remain cautious on the company.

Other Stocks

Stocks that are worth considering within this sector include Pacer International Inc. , XPO Logistics Inc. (XPO - Snapshot Report) Student Transportation Inc. (STB - Snapshot Report). All these stocks currently hold a Zacks Rank #2 (Buy).

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