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3 Transport-Service Stocks to Watch Amid Industry Hiccups
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The U.S. equity markets continue to be affected by extreme volatility. Though inflation has shown signs of cooling, Fed Chair Jerome Powell has expressed doubts about whether the current level of monetary tightening is adequate to reduce inflation sustainably. Reduced freight demand and supply-chain woes, too, act as deterrents. All these factors are denting the prospects of stocks in the Zacks Transportation-Services industry.
Despite these challenges, we believe that stocks like Expeditors International of Washington (EXPD - Free Report) , C.H. Robinson Worldwide (CHRW - Free Report) and Matson (MATX - Free Report) should be on an investor’s watchlist.
About the Industry
The companies housed in the Zacks Transportation-Services industry offer transporters logistics, leasing and maintenance services. Some industry players focus on the business of global logistics management, including international freight forwarding. Third-party logistics entities provide innovative supply-chain solutions. They also focus on services like product sourcing, warehousing and freight shipping. These companies have expertise in trucking, air and ocean transportation. Some 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. An uptick in manufactured and retail goods, favorable pricing and improvement in global economic conditions bode well for industry participants.
3 Trends Shaping the Future of the Transportation-Services Industry
Supply-Chain Disruptions & Weak Freight Rates: Although economic activities picked up from the pandemic gloom, supply-chain disruptions continue to dent stocks in the industry. Below-par freight rates are also hurting the industry’s prospects. Highlighting the weak freight demand, the Cass Freight Index for shipments declined 4.7% month on month in October. This measure has deteriorated sequentially in six of the 10 months reported so far this year, thus confirming the overall declining trend.
Strong Financial Returns for Shareholders: With economic activities gaining pace from the pandemic lows, more and more companies are allocating their increasing cash pile by way of dividends and buybacks to pacify long-suffering shareholders. This underlines their financial strength and confidence in business. Among the Transportation - Services industry players, Matson announced a 3.2% increase in the quarterly dividend in June.
Focus on Cost Cuts to Drive the Bottom Line: Despite signs of cooling inflation, we are by no means out of the woods. In fact, with inflation still well above the Fed’s 2% target, more interest rate hikes in the near term cannot be ruled out. We note that the industry has been experiencing significant levels of inflation, including higher prices for labor, freight and fuel. The industry players are focusing on cost-cutting measures and making efforts to improve productivity and efficiency to mitigate the effects of high expenses and a weaker-than-expected demand scenario.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Transportation - Services industry is a 26-stock group within the broader Zacks Transportation sector. The industry currently carries a Zacks Industry Rank #215, which places it in the bottom 14% of 250 plus Zacks industries.
The group’s Zacks Industry Rank, the average of the Zacks Rank of all member stocks, indicates dismal 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 bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group’s earnings growth potential. The industry's earnings estimate for 2024 has decreased 8.1% on a year-over-year basis.
Before we present a few stocks from the industry that you may want to consider, let’s take a look at the industry’s recent stock market performance and the valuation picture.
Industry Lags Sector and S&P 500
The Zacks Transportation-Services industry has underperformed the Zacks S&P 500 composite and the broader Transportation sector over the past year.
The industry has declined 11.3% over this period against the S&P 500's appreciation of 16% and the broader sector’s uptick of 1.1%.
One-Year Price Performance
Industry's Current Valuation
Based on the trailing 12-month price-to-sales, a commonly used multiple for valuing Transportation-services stocks, the industry is currently trading at 2.41X compared with the S&P 500's 3.87X. The value is, however, higher than the sector's trailing 12-month P/S of 1.88X.
Over the past five years, the industry has traded as high as 3.66X, as low as 1.51X and at the median of 2.6X.
Price-to-Sales Ratio (TTM)
3 Transport Services Stocks to Watch
Expeditors currently carries a Zacks Rank #3 (Hold). This Seattle, WA-based freight forwarder’s efforts to reward its shareholders are commendable. EXPD’s liquidity position is encouraging too.
EXPD has outshined the Zacks Consensus Estimate in only one of the past four quarters (missing the mark in the other three). The stock has gained 3.5% over the past three months.
C.H. Robinson Worldwide, currently carrying a Zacks Rank #3, operates as an asset-light logistics player. Efforts to control costs bode well for this freight broker. Measures to reward CHRW's shareholders instill further confidence in the stock. CHRW’s liquidity position is encouraging too.
In September, C.H. Robinson opened a new facility to speed up trade across the Mexico border in a bid to meet buoyant demand for border logistics facilities owing to nearshoring expansion. This has soared since 2020, boosted by declining U.S.-China trade relations and shifting global supply chains caused by the pandemic.
Price and Consensus: CHRW
Matson: This Honolulu, Hawaii-based provider of ocean transportation and logistics services currently has a Zacks Rank #3. We are impressed by the cost-management actions taken by the company to drive its bottom line. Efforts to reward its shareholders are commendable as well.
Over the past 60 days, the Zacks Consensus Estimate for 2024 earnings has moved 7.8% north. The stock has gained 16.1% over the past three months.
Price and Consensus: MATX
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3 Transport-Service Stocks to Watch Amid Industry Hiccups
The U.S. equity markets continue to be affected by extreme volatility. Though inflation has shown signs of cooling, Fed Chair Jerome Powell has expressed doubts about whether the current level of monetary tightening is adequate to reduce inflation sustainably. Reduced freight demand and supply-chain woes, too, act as deterrents. All these factors are denting the prospects of stocks in the Zacks Transportation-Services industry.
Despite these challenges, we believe that stocks like Expeditors International of Washington (EXPD - Free Report) , C.H. Robinson Worldwide (CHRW - Free Report) and Matson (MATX - Free Report) should be on an investor’s watchlist.
About the Industry
The companies housed in the Zacks Transportation-Services industry offer transporters logistics, leasing and maintenance services. Some industry players focus on the business of global logistics management, including international freight forwarding. Third-party logistics entities provide innovative supply-chain solutions. They also focus on services like product sourcing, warehousing and freight shipping. These companies have expertise in trucking, air and ocean transportation. Some 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. An uptick in manufactured and retail goods, favorable pricing and improvement in global economic conditions bode well for industry participants.
3 Trends Shaping the Future of the Transportation-Services Industry
Supply-Chain Disruptions & Weak Freight Rates: Although economic activities picked up from the pandemic gloom, supply-chain disruptions continue to dent stocks in the industry. Below-par freight rates are also hurting the industry’s prospects. Highlighting the weak freight demand, the Cass Freight Index for shipments declined 4.7% month on month in October. This measure has deteriorated sequentially in six of the 10 months reported so far this year, thus confirming the overall declining trend.
Strong Financial Returns for Shareholders: With economic activities gaining pace from the pandemic lows, more and more companies are allocating their increasing cash pile by way of dividends and buybacks to pacify long-suffering shareholders. This underlines their financial strength and confidence in business. Among the Transportation - Services industry players, Matson announced a 3.2% increase in the quarterly dividend in June.
Focus on Cost Cuts to Drive the Bottom Line: Despite signs of cooling inflation, we are by no means out of the woods. In fact, with inflation still well above the Fed’s 2% target, more interest rate hikes in the near term cannot be ruled out. We note that the industry has been experiencing significant levels of inflation, including higher prices for labor, freight and fuel. The industry players are focusing on cost-cutting measures and making efforts to improve productivity and efficiency to mitigate the effects of high expenses and a weaker-than-expected demand scenario.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Transportation - Services industry is a 26-stock group within the broader Zacks Transportation sector. The industry currently carries a Zacks Industry Rank #215, which places it in the bottom 14% of 250 plus Zacks industries.
The group’s Zacks Industry Rank, the average of the Zacks Rank of all member stocks, indicates dismal 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 bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group’s earnings growth potential. The industry's earnings estimate for 2024 has decreased 8.1% on a year-over-year basis.
Before we present a few stocks from the industry that you may want to consider, let’s take a look at the industry’s recent stock market performance and the valuation picture.
Industry Lags Sector and S&P 500
The Zacks Transportation-Services industry has underperformed the Zacks S&P 500 composite and the broader Transportation sector over the past year.
The industry has declined 11.3% over this period against the S&P 500's appreciation of 16% and the broader sector’s uptick of 1.1%.
One-Year Price Performance
Industry's Current Valuation
Based on the trailing 12-month price-to-sales, a commonly used multiple for valuing Transportation-services stocks, the industry is currently trading at 2.41X compared with the S&P 500's 3.87X. The value is, however, higher than the sector's trailing 12-month P/S of 1.88X.
Over the past five years, the industry has traded as high as 3.66X, as low as 1.51X and at the median of 2.6X.
Price-to-Sales Ratio (TTM)
3 Transport Services Stocks to Watch
Expeditors currently carries a Zacks Rank #3 (Hold). This Seattle, WA-based freight forwarder’s efforts to reward its shareholders are commendable. EXPD’s liquidity position is encouraging too.
EXPD has outshined the Zacks Consensus Estimate in only one of the past four quarters (missing the mark in the other three). The stock has gained 3.5% over the past three months.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: EXPD
C.H. Robinson Worldwide, currently carrying a Zacks Rank #3, operates as an asset-light logistics player. Efforts to control costs bode well for this freight broker. Measures to reward CHRW's shareholders instill further confidence in the stock. CHRW’s liquidity position is encouraging too.
In September, C.H. Robinson opened a new facility to speed up trade across the Mexico border in a bid to meet buoyant demand for border logistics facilities owing to nearshoring expansion. This has soared since 2020, boosted by declining U.S.-China trade relations and shifting global supply chains caused by the pandemic.
Price and Consensus: CHRW
Matson: This Honolulu, Hawaii-based provider of ocean transportation and logistics services currently has a Zacks Rank #3. We are impressed by the cost-management actions taken by the company to drive its bottom line. Efforts to reward its shareholders are commendable as well.
Over the past 60 days, the Zacks Consensus Estimate for 2024 earnings has moved 7.8% north. The stock has gained 16.1% over the past three months.
Price and Consensus: MATX