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Stocks in the Zacks Transportation - Shipping industry have had an impressive run on the bourses, courtesy of the economic activity-led demand uptick. Improvement in trade volumes contributed to this upside, aiding shipping stocks as those are responsible for transporting bulk of the goods involved in world trade.
Shipping companies enjoyed strong rates this year, which is in its last leg, on the back of soaring demand for goods and commodities. What is more encouraging for the space is that the demand environment is likely to remain strong in 2022 as well. Stocks like Danaos Corp, Golden Ocean Group, Genco Shipping & Trading and Eagle Bulk Shipping are likely to benefit from the rebound in the global economy from the pandemic-led woes (despite the emergence of the latest omicron variant).
About the Industry
The companies belonging to the Zacks Transportation - Shipping industry, which is cyclical in nature, offer liquefied natural gas and crude oil marine transportation services under long-term, fixed-rate contracts with major energy and utility companies. Most participants focus on the seaborne transportation of crude oil and other oil products, globally.
The industry also includes players that own, operate and manage liquefied natural gas carriers. Some participants are owners and operators of containerships for charter. The change in the e-commerce landscape amid the coronavirus-scarred scenario implies that shippers are relying more on third-party logistics providers.
The well-being of the participants in this industry is directly proportional to the health of the economy. Strength in manufactured goods, and improving global economic conditions bode well for the industry.
3 Key Investing Trends to Watch in the Transportation - Shipping Industry
Trading Volumes Should Remain High: Per the outlook for 2022 provided by Moody’s, earnings for shipping stocks are likely to be much higher than the pre-COVID levels over the next 12 months as trading volumes are expected to remain strong. With demand for goods and commodities likely to maintain their upward trend in 2022, with capacity being limited, rates should remain high.
Per Daniel Harlid, Vice President and senior analyst at Moody's, "Earnings for container and dry bulk carriers are at record levels; however, we expect earnings to fall from their 2021 peak but remain high. Still, limited deliveries of new vessels next year will help keep freight rates at elevated levels.” This implies that the shipping industry will continue to be strong next year.
Dividend Hikes Signal Financial Strength: With the resumption of economic activities, many companies including some shipping companies are reactivating their shareholder-friendly measures like increasing their respective dividend payouts, which underline their financial strength and confidence in the business. In May, Genco Shipping declared a 150% raise in its quarterly dividend payout. Also, in November, the Golden Ocean Group raised its quarterly dividend 70% to 85 cents per share.
Oil Price May Decline in 2022 Favoring Bottom Line: Per the U.S. Energy Information Administration (EIA), the omicron variant-related risk may lead to a decline in demand for oil. As a result, EIA in December 2021 slashed its oil price forecast.
The EIA in its December short-term energy outlook stated that it expects the average Brent spot price to be $70.05 per barrel for 2022. This marks a decline from its November forecast wherein it had expected the average Brent spot price at $71.91 per barrel for 2022. It projects the same to average $73 per barrel during the first quarter of 2022. This estimate is $5.26 per barrel lower than its previous prediction.
EIA’s lower forecast for oil prices is a favorable development for the shipping stocks and should support bottom-line growth. This is because fuel expenses represent one of the highest input costs for these companies.
Zacks Industry Rank Indicates Sunny Prospects
The Zacks Transportation - Shipping industry is a 44-stock group within the broader Zacks Transportation sector. The industry currently carries a Zacks Industry Rank #91, which places it in the top 36% of 250 plus Zacks industries.
The group’s Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates bright 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 positioning in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. Evidently, the industry’s earnings estimate for 2022 surged 90.9% year over year.
Before we present a few stocks that you may want to add to your portfolio, let’s take a look at the industry’s recent stock-market performance and its valuation picture.
Industry's Stock Market Performance
The Zacks Transportation – Shipping industry has outperformed both the broader Transportation Sector and the Zacks S&P 500 composite over the past year.
During this period, the industry has surged 52.1% compared with the broader sector’s increase of 7.2%. Also, the S&P 500 has appreciated 27.1% in the same time frame.
The Valuation Picture
Based on the trailing 12-month enterprise value-to-EBITDA (EV/EBITDA), a commonly used multiple for valuing shipping stocks, the industry is currently trading at 5.62X compared with the S&P 500’s 15.97X. It is also below the sector’s trailing-12-month EV/EBITDA of 15.20X.
Over the past five years, the industry has traded as high as 14.80X, as low as 4.47X and at the median of 9.68X.
4 Transportation --Shipping Stocks Worth Adding to Your Portfolio
Danaos Corporation: This Athens, Greece-based company is benefiting from an expanded fleet and higher charter rates. Efforts to reduce the debt levels also bode well for DAC.
The stock has gained more than 100% over the past year. Currently sporting a Zacks Rank #1 (Strong Buy), Danos has seen the Zacks Consensus Estimate for 2022 earnings being revised 6.5% upward over the past 60 days.
Genco Shipping & Trading Limited: This New York-based company currently flaunts a Zacks Rank of 1. Optimism surrounding the dry bulk market is a huge boon for Genco Shipping. Increased fleet utilization with the gradual reopening of the economy and an upturn in world trade are also aiding GNK.
On the back of the aforementioned tailwinds, shares of Genco Shipping, which is focused on the seaborne transportation of commodities across the globe, have skyrocketed in excess of 100% in a year’s time. The stock has also seen the Zacks Consensus Estimate for next-year earnings move 15.4% north over the past 60 days.
Eagle Bulk Shipping: Headquartered in Stamford, CT, Eagle Bulk Shipping is currently Zacks #1 Ranked. Like Genco Shipping, EGLE is gaining from the optimism surrounding the dry bulk market as economic activities gradually gather steam.
Buoyed by this upbeat scenario, shares of this biggest U.S-based owner of Handymax dry bulk vessels, have had a dream run on the bourses over the past year, skyrocketing above 100%. The EGLE stock has also seen the Zacks Consensus Estimate for 2022 earnings move 8.4% north over the past 60 days.
Golden Ocean Group is currently based in Hamilton, Bermuda. GOGL’s cash flow-generating ability is impressive. Its strong balance sheet supports its shareholder-friendly activities. GOGL is also benefiting from strong dry bulk demand.
Golden Ocean currently carries a Zacks Rank #2 (Buy). Driven by the bullish scenario, GOGL has had a dream run on the bourses over the past year, surging above 93%. The stock has also seen the Zacks Consensus Estimate for current-quarter earnings move 23% north over the past 90 days.
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Highlights: Danaos Corp, Golden Ocean Group, Genco Shipping & Trading and Eagle Bulk Shipping
For Immediate Release
Chicago, IL – December 29, 2021 – Today, Zacks Equity Research discusses Shipping, including Danaos Corporation (DAC - Free Report) , Golden Ocean Group Limited (GOGL - Free Report) , Genco Shipping & Trading Ltd. (GNK - Free Report) and Eagle Bulk Shipping Inc. .
Link: https://www.zacks.com/commentary/1844003/4-top-ranked-stocks-from-a-prospering-shipping-industry
Stocks in the Zacks Transportation - Shipping industry have had an impressive run on the bourses, courtesy of the economic activity-led demand uptick. Improvement in trade volumes contributed to this upside, aiding shipping stocks as those are responsible for transporting bulk of the goods involved in world trade.
Shipping companies enjoyed strong rates this year, which is in its last leg, on the back of soaring demand for goods and commodities. What is more encouraging for the space is that the demand environment is likely to remain strong in 2022 as well. Stocks like Danaos Corp, Golden Ocean Group, Genco Shipping & Trading and Eagle Bulk Shipping are likely to benefit from the rebound in the global economy from the pandemic-led woes (despite the emergence of the latest omicron variant).
About the Industry
The companies belonging to the Zacks Transportation - Shipping industry, which is cyclical in nature, offer liquefied natural gas and crude oil marine transportation services under long-term, fixed-rate contracts with major energy and utility companies. Most participants focus on the seaborne transportation of crude oil and other oil products, globally.
The industry also includes players that own, operate and manage liquefied natural gas carriers. Some participants are owners and operators of containerships for charter. The change in the e-commerce landscape amid the coronavirus-scarred scenario implies that shippers are relying more on third-party logistics providers.
The well-being of the participants in this industry is directly proportional to the health of the economy. Strength in manufactured goods, and improving global economic conditions bode well for the industry.
3 Key Investing Trends to Watch in the Transportation - Shipping Industry
Trading Volumes Should Remain High: Per the outlook for 2022 provided by Moody’s, earnings for shipping stocks are likely to be much higher than the pre-COVID levels over the next 12 months as trading volumes are expected to remain strong. With demand for goods and commodities likely to maintain their upward trend in 2022, with capacity being limited, rates should remain high.
Per Daniel Harlid, Vice President and senior analyst at Moody's, "Earnings for container and dry bulk carriers are at record levels; however, we expect earnings to fall from their 2021 peak but remain high. Still, limited deliveries of new vessels next year will help keep freight rates at elevated levels.” This implies that the shipping industry will continue to be strong next year.
Dividend Hikes Signal Financial Strength: With the resumption of economic activities, many companies including some shipping companies are reactivating their shareholder-friendly measures like increasing their respective dividend payouts, which underline their financial strength and confidence in the business. In May, Genco Shipping declared a 150% raise in its quarterly dividend payout. Also, in November, the Golden Ocean Group raised its quarterly dividend 70% to 85 cents per share.
Oil Price May Decline in 2022 Favoring Bottom Line: Per the U.S. Energy Information Administration (EIA), the omicron variant-related risk may lead to a decline in demand for oil. As a result, EIA in December 2021 slashed its oil price forecast.
The EIA in its December short-term energy outlook stated that it expects the average Brent spot price to be $70.05 per barrel for 2022. This marks a decline from its November forecast wherein it had expected the average Brent spot price at $71.91 per barrel for 2022. It projects the same to average $73 per barrel during the first quarter of 2022. This estimate is $5.26 per barrel lower than its previous prediction.
EIA’s lower forecast for oil prices is a favorable development for the shipping stocks and should support bottom-line growth. This is because fuel expenses represent one of the highest input costs for these companies.
Zacks Industry Rank Indicates Sunny Prospects
The Zacks Transportation - Shipping industry is a 44-stock group within the broader Zacks Transportation sector. The industry currently carries a Zacks Industry Rank #91, which places it in the top 36% of 250 plus Zacks industries.
The group’s Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates bright 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 positioning in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. Evidently, the industry’s earnings estimate for 2022 surged 90.9% year over year.
Before we present a few stocks that you may want to add to your portfolio, let’s take a look at the industry’s recent stock-market performance and its valuation picture.
Industry's Stock Market Performance
The Zacks Transportation – Shipping industry has outperformed both the broader Transportation Sector and the Zacks S&P 500 composite over the past year.
During this period, the industry has surged 52.1% compared with the broader sector’s increase of 7.2%. Also, the S&P 500 has appreciated 27.1% in the same time frame.
The Valuation Picture
Based on the trailing 12-month enterprise value-to-EBITDA (EV/EBITDA), a commonly used multiple for valuing shipping stocks, the industry is currently trading at 5.62X compared with the S&P 500’s 15.97X. It is also below the sector’s trailing-12-month EV/EBITDA of 15.20X.
Over the past five years, the industry has traded as high as 14.80X, as low as 4.47X and at the median of 9.68X.
4 Transportation --Shipping Stocks Worth Adding to Your Portfolio
Danaos Corporation: This Athens, Greece-based company is benefiting from an expanded fleet and higher charter rates. Efforts to reduce the debt levels also bode well for DAC.
The stock has gained more than 100% over the past year. Currently sporting a Zacks Rank #1 (Strong Buy), Danos has seen the Zacks Consensus Estimate for 2022 earnings being revised 6.5% upward over the past 60 days.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Genco Shipping & Trading Limited: This New York-based company currently flaunts a Zacks Rank of 1. Optimism surrounding the dry bulk market is a huge boon for Genco Shipping. Increased fleet utilization with the gradual reopening of the economy and an upturn in world trade are also aiding GNK.
On the back of the aforementioned tailwinds, shares of Genco Shipping, which is focused on the seaborne transportation of commodities across the globe, have skyrocketed in excess of 100% in a year’s time. The stock has also seen the Zacks Consensus Estimate for next-year earnings move 15.4% north over the past 60 days.
Eagle Bulk Shipping: Headquartered in Stamford, CT, Eagle Bulk Shipping is currently Zacks #1 Ranked. Like Genco Shipping, EGLE is gaining from the optimism surrounding the dry bulk market as economic activities gradually gather steam.
Buoyed by this upbeat scenario, shares of this biggest U.S-based owner of Handymax dry bulk vessels, have had a dream run on the bourses over the past year, skyrocketing above 100%. The EGLE stock has also seen the Zacks Consensus Estimate for 2022 earnings move 8.4% north over the past 60 days.
Golden Ocean Group is currently based in Hamilton, Bermuda. GOGL’s cash flow-generating ability is impressive. Its strong balance sheet supports its shareholder-friendly activities. GOGL is also benefiting from strong dry bulk demand.
Golden Ocean currently carries a Zacks Rank #2 (Buy). Driven by the bullish scenario, GOGL has had a dream run on the bourses over the past year, surging above 93%. The stock has also seen the Zacks Consensus Estimate for current-quarter earnings move 23% north over the past 90 days.
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Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.