It is no longer news that the Zacks
Transportation - Air Freight and Cargo industry has been one of the brightest corners in the transportation space throughout the coronavirus-ravaged period to date, courtesy of the spurt in e-commerce demand amid pandemic-led restrictions. With the pandemic still prevalent, e-commerce demand is likely to continue soaring in the near term. This implies good tidings for the companies like United Parcel Service ( UPS Quick Quote UPS - Free Report) , FedEx Corporation ( FDX Quick Quote FDX - Free Report) and Atlas Air Worldwide Holdings ( AAWW Quick Quote AAWW - 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 offer a range of supply-chain solutions, such as, freight forwarding, customs brokerage, fulfillment, returns, financial transactions and repairs. The well-being of the companies in this industrial cohort is directly proportional to the health of the economy. Leading industry players like UPS and FedEx 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 focus on providing air transportation services for passengers and cargo, some others deliver services to entities that outsource air-cargo lifting requirements.
3 Transportation - Air Freight and Cargo Industry Trends to Watch out for
Online Shopping Boom Here to Stay In this coronavirus-ravaged world, e-commerce — the method of buying and selling goods and services via a software platform — has proved to be quite beneficial so far. People resorted to online shopping from the comforts of their homes. Even as economies reopen and relaxations ease, courtesy of increased vaccination, the dominance of e-commerce is far from subsiding and is likely to sustain the momentum owing to the many conveniences it provides to consumers. In fact, the global e-commerce market is : estimated to witness a CAGR of 22.9% in the 2020-2027 time frame. This should stand the industry players in good stead. With the resumption of economic activities, many companies are reactivating their shareholder-friendly measures like dividend payouts and buybacks, thereby underlining their financial strength and confidence in the business. Among Air Freight and Cargo players, FedEx’s board approved a 15% hike in its quarterly dividend payout in June, raising the total to 75 cents per share. In February, UPS' board cleared a 1% increase in its quarterly dividend, expanding the same to $1.02 per share. Shareholder-Friendly Measures Pick Up the Pace:
Escalated Costs a Bane :Increase in operating expenses is limiting bottom-line growth. For example, at UPS, operating costs escalated 18.7% in first-quarter 2021 due to rise in costs at all three segments. Operating expenses increased 14.1%, 24.4% and 30.6% at the U.S. Domestic Package, International Package and Supply Chain & Freight units, respectively, in the March quarter. With coronavirus-induced uncertainty still existent, high capital expenses might dent profit margins. For example, FedEx expects capital expenditures for fiscal 2022 to be $7.2 billion, higher than $5.88 billion incurred in fiscal 2021. The capital spending will primarily be aimed at capacity expansion, fleet and facility modernization, and increased automation. Capex is also high at Air Transport Services Group ( ATSG Quick Quote ATSG - Free Report) . Zacks Industry Rank Indicates Sunny Prospects
The Zacks Air Freight and Cargo industry, housed within the broader Zacks
Transportation sector, currently carries a Zacks Industry Rank #68. This rank places it in the top 27% of more than 250 Zacks industries.
Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates upbeat 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 the positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gaining confidence from this group’s earnings growth potential. The industry’s earnings estimate for 2021 has moved 52.7% north year over year.
Given the bright near-term prospects of the industry, we will present a few stocks that investors can buy to enrich their portfolios. But it’s worth taking a look at the industry’s shareholder returns and its current valuation at first.
Industry Breezes Past the S&P 500 & the Sector
The Zacks Air Freight and Cargo industry has outperformed the Zacks S&P 500 composite and also the broader Transportation sector over the past year.
The industry has surged 82.9% over this period compared with the S&P 500’s appreciation of 38.7%. Meanwhile, the broader sector has appreciated 42.4%.
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 12.06X compared with the S&P 500’s 18X. It is also lower than the sector’s trailing 12-month EV/EBITDA of 22.96X.
Over the past five years, the industry has traded as high as 13.48X, as low as 6.29X and at the median of 9.76X.
Enterprise Value-to-EBITDA Ratio
3 Transportation --Air Freight and Cargo Stocks to Keep Tabs on
FedEx currently has a Zacks Rank #2 (Buy). The company is benefiting from the boom in e-commerce demand that has led the stock to rally 15.8% year to date. The positivity surrounding the stock is evident from the 6.4% upward revision in the Zacks Consensus Estimate for current-year earnings over the past 60 days. FedEx’s earnings per share are expected to grow 12% in the next three-five years. Price and Consensus: FDX UPS: The exponential e-commerce growth rate in the current scenario is a huge plus for this Atlanta-based company, which currently carries a Zacks Rank #3 (Hold). We are also encouraged by UPS' ability to generate solid free cash flow.
Primarily, owing to the e-commerce surge, UPS shares have gained more than 26% year to date. Over the past 60 days, the stock has seen the Zacks Consensus Estimate for 2021 earnings move 1.1% north.
Price and Consensus: UPS
Atlas Air Worldwide Holdings: The company is a provider of outsourced aircraft and aviation operating services. Over the past 60 days, this presently Zacks #3 Ranked company has seen the Zacks Consensus Estimate for 2021 earnings being revised 2.5% upward. The stock has jumped 24.1% so far this year.
Atlas Air is being supported by strong demand for airfreight in the coronavirus-triggered scenario. The boom in e-commerce trends amid the current scenario is a huge positive. The rise in online sales emerged as a key catalyst for the cargo carriers.
Price and Consensus: AAWW