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3 Air-Freight & Cargo Stocks to Watch Despite Industry Woes
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Players in the Zacks Transportation - Air Freight and Cargo industry are currently being hit by headwinds like supply-chain woes and economic uncertainties. High fuel costs are hurting their bottom lines.
However, the strong demand scenario bodes well for the industry participants. Even though economies are reopening, consumers’ thirst for online shopping is rampant. High shipping rates also augur well. We expect companies like United Parcel Service (UPS - Free Report) , Atlas Air Worldwide Holdings and Air Transport Services Group ((ATSG - Free Report) ) to benefit from these favorable developments.
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, including UPS, 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 players focus on providing air-transportation services for passengers and cargo, others deliver services to entities that outsource air-cargo lifting requirements.
3 Key Trends to Watch in the Transportation-Air Freight & Cargo Industry
E-commerce Demand Remains Strong: Agreed that e-commerce demand shrank from the levels witnessed at the peak of the pandemic, as economies reopen and normal economic activities gain traction. However, e-commerce remains strong, driven by the convenience of on-line shopping. Apart from consumer habits, the race to digitization supports the momentum in e-commerce growth. E-commerce demand strength should continue to support growth of the industry players. Favorable pricing will also bear good news for the industry players.
Economic Uncertainties a Woe:The Fed’s latest move to raise its core interest rate by another 75 basis points means that the central bank has hiked interest rates 300 basis points so far this year. Interest rate hikes do not bode well for the industry as the same flares up finance costs and potentially weakens borrowing and lending activities, thereby heightening the risk of economic slowdown. Sluggishness induced weakness in Asia and service challenges in Europe, which are hurting shipping volumes. This does not bode well for the industry participants.
Supply-Chain Disruptions & High Costs a Downside: Supply-chain disturbances and a tight labor market are ailing the Air Freight and Cargo Industry players. Higher labor and transportation costs are aggravating their woes. Shortage of labor impaired their ability to meet high demand. Costs will likely continue to be steep going forward due to supply-chain troubles. The spike in fuel costs is also flaring up the operating expenses of the industry players.
Zacks Industry Rank Indicates Gloomy Prospects
The Zacks Air Freight and Cargo industry, housed within the broader Zacks Transportation sector, currently carries a Zacks Industry Rank #225. This rank places it in the bottom 11% 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, indicates bleak near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of the negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are losing confidence in this group’s earnings growth potential. The industry’s earnings estimate for 2022 has moved 7.3% south since August-end on a year-over-year basis.
Despite the drab near-term prospects of the industry, we present a few stocks that investors can retain in their portfolios. But it’s worth looking at the industry’s shareholder returns and current valuation first.
Industry Lags S&P 500 and Sector
The Zacks Air Freight and Cargo industry has underperformed the Zacks S&P 500 composite and the broader Transportation sector over the past year.
The industry has decreased 26.2% over this period compared with the S&P 500’s depreciation of 21.5% and the broader sector’s decline of 22%.
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 7.39X compared with the S&P 500’s 11.47X. It is also lower than the sector’s trailing 12-month EV/EBITDA of 10.69X.
Over the past five years, the industry has traded as high as 13.78X, as low as 6.56X and at the median of 10.10X.
Enterprise Value-to-EBITDA Ratio (TTM)
3 Transportation - Air Freight and Cargo Stocks to Keep Tabs on
Air Transport Services Group: Wilmington, OH-based ATSG is a leading provider of aircraft leasing, and air-cargo transportation and related services, globally. Over the past 60 days, the currently carrying a Zacks Rank #2 (Buy), has seen the Zacks Consensus Estimate for 2022 inch up 0.9% to $2.22.
The boom in e-commerce demand during these coronavirus-ravaged times is a tailwind to Air Transport Services Group. Driven by buoyant demand for midsize freighters, ATSG issued a bullish adjusted EBITDA view for 2022. ATSG expects the metric to be $640 million, nearly $100 million above the 2021 levels.
UPS: The rapid e-commerce growth rate in the current scenario is a huge plus for Atlanta-based UPS, currently carrying a Zacks Rank #3 (Hold). Robust free cash flow generation by UPS is a major positive, leading to an uptick in its shareholder-friendly activities.
Over the past 30 days, the Zacks Consensus Estimate for 2022 earnings has moved 0.5% north. UPS earnings outshined the Zacks Consensus Estimate in each of the last four quarters, the average being 7.9%.
Price and Consensus: UPS
Atlas Air Worldwide Holdings is the parent company of Atlas Air and Polar Air Cargo, which operate a fleet of freighter aircraft together. AAWW is primarily involved in the airport-to-airport air transportation of heavy freight. Strong demand for air freight amid the coronavirus pandemic supports AAWW. The boom in e-commerce trends amid the current scenario is a catalyst.
Over the past 60 days, the AAWW stock has seen the Zacks Consensus Estimate for 2022 earnings remain stable at $16.29. Atlas Air currently carries a Zacks Rank #3.
Price and Consensus: AAWW
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3 Air-Freight & Cargo Stocks to Watch Despite Industry Woes
Players in the Zacks Transportation - Air Freight and Cargo industry are currently being hit by headwinds like supply-chain woes and economic uncertainties. High fuel costs are hurting their bottom lines.
However, the strong demand scenario bodes well for the industry participants. Even though economies are reopening, consumers’ thirst for online shopping is rampant. High shipping rates also augur well. We expect companies like United Parcel Service (UPS - Free Report) , Atlas Air Worldwide Holdings and Air Transport Services Group ((ATSG - Free Report) ) to benefit from these favorable developments.
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, including UPS, 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 players focus on providing air-transportation services for passengers and cargo, others deliver services to entities that outsource air-cargo lifting requirements.
3 Key Trends to Watch in the Transportation-Air Freight & Cargo Industry
E-commerce Demand Remains Strong: Agreed that e-commerce demand shrank from the levels witnessed at the peak of the pandemic, as economies reopen and normal economic activities gain traction. However, e-commerce remains strong, driven by the convenience of on-line shopping. Apart from consumer habits, the race to digitization supports the momentum in e-commerce growth. E-commerce demand strength should continue to support growth of the industry players. Favorable pricing will also bear good news for the industry players.
Economic Uncertainties a Woe:The Fed’s latest move to raise its core interest rate by another 75 basis points means that the central bank has hiked interest rates 300 basis points so far this year. Interest rate hikes do not bode well for the industry as the same flares up finance costs and potentially weakens borrowing and lending activities, thereby heightening the risk of economic slowdown. Sluggishness induced weakness in Asia and service challenges in Europe, which are hurting shipping volumes. This does not bode well for the industry participants.
Supply-Chain Disruptions & High Costs a Downside: Supply-chain disturbances and a tight labor market are ailing the Air Freight and Cargo Industry players. Higher labor and transportation costs are aggravating their woes. Shortage of labor impaired their ability to meet high demand. Costs will likely continue to be steep going forward due to supply-chain troubles. The spike in fuel costs is also flaring up the operating expenses of the industry players.
Zacks Industry Rank Indicates Gloomy Prospects
The Zacks Air Freight and Cargo industry, housed within the broader Zacks Transportation sector, currently carries a Zacks Industry Rank #225. This rank places it in the bottom 11% 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, indicates bleak near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of the negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are losing confidence in this group’s earnings growth potential. The industry’s earnings estimate for 2022 has moved 7.3% south since August-end on a year-over-year basis.
Despite the drab near-term prospects of the industry, we present a few stocks that investors can retain in their portfolios. But it’s worth looking at the industry’s shareholder returns and current valuation first.
Industry Lags S&P 500 and Sector
The Zacks Air Freight and Cargo industry has underperformed the Zacks S&P 500 composite and the broader Transportation sector over the past year.
The industry has decreased 26.2% over this period compared with the S&P 500’s depreciation of 21.5% and the broader sector’s decline of 22%.
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 7.39X compared with the S&P 500’s 11.47X. It is also lower than the sector’s trailing 12-month EV/EBITDA of 10.69X.
Over the past five years, the industry has traded as high as 13.78X, as low as 6.56X and at the median of 10.10X.
Enterprise Value-to-EBITDA Ratio (TTM)
3 Transportation - Air Freight and Cargo Stocks to Keep Tabs on
Air Transport Services Group: Wilmington, OH-based ATSG is a leading provider of aircraft leasing, and air-cargo transportation and related services, globally. Over the past 60 days, the currently carrying a Zacks Rank #2 (Buy), has seen the Zacks Consensus Estimate for 2022 inch up 0.9% to $2.22.
The boom in e-commerce demand during these coronavirus-ravaged times is a tailwind to Air Transport Services Group. Driven by buoyant demand for midsize freighters, ATSG issued a bullish adjusted EBITDA view for 2022. ATSG expects the metric to be $640 million, nearly $100 million above the 2021 levels.
Price and Consensus: ATSG
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
UPS: The rapid e-commerce growth rate in the current scenario is a huge plus for Atlanta-based UPS, currently carrying a Zacks Rank #3 (Hold). Robust free cash flow generation by UPS is a major positive, leading to an uptick in its shareholder-friendly activities.
Over the past 30 days, the Zacks Consensus Estimate for 2022 earnings has moved 0.5% north. UPS earnings outshined the Zacks Consensus Estimate in each of the last four quarters, the average being 7.9%.
Price and Consensus: UPS
Atlas Air Worldwide Holdings is the parent company of Atlas Air and Polar Air Cargo, which operate a fleet of freighter aircraft together. AAWW is primarily involved in the airport-to-airport air transportation of heavy freight. Strong demand for air freight amid the coronavirus pandemic supports AAWW. The boom in e-commerce trends amid the current scenario is a catalyst.
Over the past 60 days, the AAWW stock has seen the Zacks Consensus Estimate for 2022 earnings remain stable at $16.29. Atlas Air currently carries a Zacks Rank #3.
Price and Consensus: AAWW