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.
3 Stocks to Cash in on Transport Services Industry's Recovery
Read MoreHide Full Article
With economic activities rebounding in 2021, the underlying fundamentals of the Zacks Transportation-Services industry are also strengthening. As the economy is gradually reopening following the relaxation of coronavirus-induced restrictions, there is a growing belief that the worst is over for this key industry. The rising popularity of e-commerce business amid the ongoing pandemic is spurring demand for the logistics companies.
Notably, the transport service providers are riding on tailwinds like the steady uptick in freight scenario and cost-containment measures. Stocks like Expeditors International of Washington (EXPD - Free Report) , C.H. Robinson Worldwide (CHRW - Free Report) and EchoGlobal Logistics are well-positioned to gain from these favorable developments.
About the Industry
The companies housed in the Zacks Transportation-Services industry offer logistics, leasing and maintenance services to transporters. Some of the industry players focus on the business of global logistics management including international freight forwarding. The third-party logistics companies provide innovative supply-chain solutions. They also focus on services like product sourcing, warehousing and freight shipping. The companies have expertise in the fields of trucking, air and ocean transportation. Additionally, some of the players in this industry deliver domestic and international express delivery services. The well-being of the companies in this industrial cohort is directly proportional to the health of the economy. Notably, an uptick in manufactured and retail goods, favorable pricing and improving global economic conditions bode well for the industry participants.
3 Key Investing Trends to Watch in the Transportation-Services Industry
Constructive Environment With Respect to Freight: The improving freight conditions in the United States represent a huge positive for the transport service providers. The betterment in the freight scenario can be gauged by the latest Cass Freight Shipments Index report, according to which shipment volumes increased 35.3% on a year-over-year basis in May. Notably, this record uptick in May was higher than the 27.6% year-over-year rise reported in April and a 10% jump in March. Moreover, freight forwarding companies like Expeditors are gaining from phenomenal growth in airfreight revenues. The coronavirus-induced cancellation of multiple passenger flights aided the air-cargo markets to be in the pink of health across the globe as demand in the said space is moving northward. The gradual improvement in global economic conditions and supply-chain dynamics is likely to continue supporting the uptick in air-cargo demand.
Continued Focus on Cost Control: Apart from the brightening freight scene, the constant efforts of these service providers to cut costs and improve efficiencies are supporting the bottom line, thereby aiding growth. Evidently in 2020, freight broker C.H. Robinson generated approximately two-thirds of $100 million per year of long-term or permanent cost savings. In the first quarter of 2021, the company generated $90 million of long-term cost savings and expects to achieve the remaining $10 million by the end of the second quarter. In the second half of 2021, the company hopes to continue delivering long-term cost savings through process redesign and automation across the enterprise. In another example of efficient cost management, operating costs at Schneider National (SNDR - Free Report) declined 6% in 2020 owing to lower expenses on items like fuel, salaries, wages and benefits.
Shareholder-Friendly Measures Pick Up the Pace: With the resumption of economic activities, many companies including some transport service providers are reactivating their shareholder-friendly measures like dividend payouts and buybacks, thereby underlining their financial strength and confidence in the business. Evidently, in May 2021, Expeditors announced an 11.5% hike in its semi-annual cash dividend, taking the total to 58 cents per share (annualized $1.16). Also, after a temporary pause on its share repurchase programs to address the coronavirus situation, C.H. Robinson resumed the same in the fourth quarter of 2020.
Zacks Industry Rank Indicates Positive Outlook
The Zacks Transportation-Services industry is a 29-stock group within the broader Zacks Transportation sector. The industry currently carries a Zacks Industry Rank #60, which places it in the top 24% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, implies sunny 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 position 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 from this group’s earnings growth potential. On a year-to-date basis, the industry’s earnings estimate for 2021 has been revised 22.9% upward.
Given the bullish near-term prospects of the industry, we will present a few stocks that you may want to include in your portfolio. But it’s worth taking a look at the industry’s shareholder returns and its current valuation first.
Industry Lags S&P 500 and Sector
The Zacks Transportation-Services industry has underperformed the Zacks S&P 500 composite as well as the broader Transportation Sector over the past year.
The industry has rallied 36.9% over this period compared with the S&P 500’s appreciation of 38.3%. Moreover, the broader sector has gained 44%.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month enterprise value-to-EBITDA (EV/EBITDA), which is a commonly used multiple for valuing Transportation-services stocks, the industry is currently trading at 22.88X compared with the S&P 500’s 17.48X. It is also higher than the sector’s trailing 12-month EV/EBITDA of 20.52X.
Over the past five years, the industry has traded as high as 30.14X, as low as 9.65X and at the median of 16.73X.
Enterprise Value-to-EBITDA Ratio
3 Top Stocks to Buy Now
Expeditors International of Washington: This Seattle, WA-based company is engaged in the business of global logistics management including international freight forwarding and consolidation for both air and ocean freight. Over the past 60 days, this presently #2 Ranked company has seen the Zacks Consensus Estimate for 2021 move 21.1% north. The stock has surged 31.8% so far this year.
Expeditors is being bolstered by the uptick in airfreight revenues. Its sound balance sheet is also encouraging. As of Mar 31, 2021, the company had no long-term debt obligations.
Price and Consensus: EXPD
C.H. Robinson: This Minnesota-based company, which specializes in solving logistics-related issues of companies across the globe, currently carries a Zacks Rank #2 (Buy). Over the past 60 days, the stock has seen the Zacks Consensus Estimate for 2021 move 14.2% north. The stock has gained 5.6% year to date. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Better freight market conditions are aiding C.H. Robinson. The company’s efforts to reward its shareholders are also impressive. We are upbeat about the company's growth-by-acquisition policy.
Price and Consensus: CHRW
Echo Global Logistics: This Chicago-based provider of technology-enabled transportation management services currently carries a Zacks Rank of 2. Over the past 60 days, the company has seen the Zacks Consensus Estimate for 2021 rise 17%. The stock has gained 22.3% year to date. Factors like expansion in truckload and LTL (less-than-truckload) volumes bode well for the stock. The boom in e-commerce business is a bonus.
Price and Consensus: ECHO
Zacks' Top Picks to Cash in on Artificial Intelligence
In 2021, this world-changing technology is projected to generate $327.5 billion in revenue. Now Shark Tank star and billionaire investor Mark Cuban says AI will create "the world's first trillionaires." Zacks' urgent special report reveals 3 AI picks investors need to know about today.
Image: Shutterstock
3 Stocks to Cash in on Transport Services Industry's Recovery
With economic activities rebounding in 2021, the underlying fundamentals of the Zacks Transportation-Services industry are also strengthening. As the economy is gradually reopening following the relaxation of coronavirus-induced restrictions, there is a growing belief that the worst is over for this key industry. The rising popularity of e-commerce business amid the ongoing pandemic is spurring demand for the logistics companies.
Notably, the transport service providers are riding on tailwinds like the steady uptick in freight scenario and cost-containment measures. Stocks like Expeditors International of Washington (EXPD - Free Report) , C.H. Robinson Worldwide (CHRW - Free Report) and Echo Global Logistics are well-positioned to gain from these favorable developments.
About the Industry
The companies housed in the Zacks Transportation-Services industry offer logistics, leasing and maintenance services to transporters. Some of the industry players focus on the business of global logistics management including international freight forwarding. The third-party logistics companies provide innovative supply-chain solutions. They also focus on services like product sourcing, warehousing and freight shipping. The companies have expertise in the fields of trucking, air and ocean transportation. Additionally, some of the players in this industry deliver domestic and international express delivery services. The well-being of the companies in this industrial cohort is directly proportional to the health of the economy. Notably, an uptick in manufactured and retail goods, favorable pricing and improving global economic conditions bode well for the industry participants.
3 Key Investing Trends to Watch in the Transportation-Services Industry
Constructive Environment With Respect to Freight: The improving freight conditions in the United States represent a huge positive for the transport service providers. The betterment in the freight scenario can be gauged by the latest Cass Freight Shipments Index report, according to which shipment volumes increased 35.3% on a year-over-year basis in May. Notably, this record uptick in May was higher than the 27.6% year-over-year rise reported in April and a 10% jump in March. Moreover, freight forwarding companies like Expeditors are gaining from phenomenal growth in airfreight revenues. The coronavirus-induced cancellation of multiple passenger flights aided the air-cargo markets to be in the pink of health across the globe as demand in the said space is moving northward. The gradual improvement in global economic conditions and supply-chain dynamics is likely to continue supporting the uptick in air-cargo demand.
Continued Focus on Cost Control: Apart from the brightening freight scene, the constant efforts of these service providers to cut costs and improve efficiencies are supporting the bottom line, thereby aiding growth. Evidently in 2020, freight broker C.H. Robinson generated approximately two-thirds of $100 million per year of long-term or permanent cost savings. In the first quarter of 2021, the company generated $90 million of long-term cost savings and expects to achieve the remaining $10 million by the end of the second quarter. In the second half of 2021, the company hopes to continue delivering long-term cost savings through process redesign and automation across the enterprise. In another example of efficient cost management, operating costs at Schneider National (SNDR - Free Report) declined 6% in 2020 owing to lower expenses on items like fuel, salaries, wages and benefits.
Shareholder-Friendly Measures Pick Up the Pace: With the resumption of economic activities, many companies including some transport service providers are reactivating their shareholder-friendly measures like dividend payouts and buybacks, thereby underlining their financial strength and confidence in the business. Evidently, in May 2021, Expeditors announced an 11.5% hike in its semi-annual cash dividend, taking the total to 58 cents per share (annualized $1.16). Also, after a temporary pause on its share repurchase programs to address the coronavirus situation, C.H. Robinson resumed the same in the fourth quarter of 2020.
Zacks Industry Rank Indicates Positive Outlook
The Zacks Transportation-Services industry is a 29-stock group within the broader Zacks Transportation sector. The industry currently carries a Zacks Industry Rank #60, which places it in the top 24% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, implies sunny 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 position 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 from this group’s earnings growth potential. On a year-to-date basis, the industry’s earnings estimate for 2021 has been revised 22.9% upward.
Given the bullish near-term prospects of the industry, we will present a few stocks that you may want to include in your portfolio. But it’s worth taking a look at the industry’s shareholder returns and its current valuation first.
Industry Lags S&P 500 and Sector
The Zacks Transportation-Services industry has underperformed the Zacks S&P 500 composite as well as the broader Transportation Sector over the past year.
The industry has rallied 36.9% over this period compared with the S&P 500’s appreciation of 38.3%. Moreover, the broader sector has gained 44%.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month enterprise value-to-EBITDA (EV/EBITDA), which is a commonly used multiple for valuing Transportation-services stocks, the industry is currently trading at 22.88X compared with the S&P 500’s 17.48X. It is also higher than the sector’s trailing 12-month EV/EBITDA of 20.52X.
Over the past five years, the industry has traded as high as 30.14X, as low as 9.65X and at the median of 16.73X.
Enterprise Value-to-EBITDA Ratio
3 Top Stocks to Buy Now
Expeditors International of Washington: This Seattle, WA-based company is engaged in the business of global logistics management including international freight forwarding and consolidation for both air and ocean freight. Over the past 60 days, this presently #2 Ranked company has seen the Zacks Consensus Estimate for 2021 move 21.1% north. The stock has surged 31.8% so far this year.
Expeditors is being bolstered by the uptick in airfreight revenues. Its sound balance sheet is also encouraging. As of Mar 31, 2021, the company had no long-term debt obligations.
Price and Consensus: EXPD
C.H. Robinson: This Minnesota-based company, which specializes in solving logistics-related issues of companies across the globe, currently carries a Zacks Rank #2 (Buy). Over the past 60 days, the stock has seen the Zacks Consensus Estimate for 2021 move 14.2% north. The stock has gained 5.6% year to date. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Better freight market conditions are aiding C.H. Robinson. The company’s efforts to reward its shareholders are also impressive. We are upbeat about the company's growth-by-acquisition policy.
Price and Consensus: CHRW
Echo Global Logistics: This Chicago-based provider of technology-enabled transportation management services currently carries a Zacks Rank of 2. Over the past 60 days, the company has seen the Zacks Consensus Estimate for 2021 rise 17%. The stock has gained 22.3% year to date. Factors like expansion in truckload and LTL (less-than-truckload) volumes bode well for the stock. The boom in e-commerce business is a bonus.
Price and Consensus: ECHO
Zacks' Top Picks to Cash in on Artificial Intelligence
In 2021, this world-changing technology is projected to generate $327.5 billion in revenue. Now Shark Tank star and billionaire investor Mark Cuban says AI will create "the world's first trillionaires." Zacks' urgent special report reveals 3 AI picks investors need to know about today.
See 3 Artificial Intelligence Stocks With Extreme Upside Potential>>