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Here's What Makes ZIM Integrated (ZIM) an Attractive Bet Now

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ZIM Integrated Shipping Services Ltd. (ZIM - Free Report) is in a sweet spot now as it gains from increased freight rates, high demand owing to a strong global economy, balance sheet strengthening, new contracts and other strategic initiatives.

The stock of this provider of container shipping and related services has seen the Zacks Consensus Estimate for current-year earnings being revised 68.8% upward over the last seven days. The presently Zacks Rank #1 (Strong Buy) player carries a VGM Score A. It has been proved time and again that the stock with a strong Zacks Rank and a solid Style Score offer best investment opportunities.

You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for 2021 sales and earnings is expected to grow 136.72% and 520.56%, respectively.  

Year to date, the stock has skyrocketed 316% compared with its industry’s growth of 8.9%.

 

Zacks Investment Research
Image Source: Zacks Investment Research

Other companies in the same space, namely Danaos Corporation (DAC - Free Report) , Costamare Inc. (CMRE - Free Report) and Atlas Corp. (ATCO - Free Report) have gained 291.7%, 58.3% and 31.6%, respectively.

Though the stock has risen to such high levels, a continued surge in demand (particularly in the United States) is indicative of a very positive outlook for the second half of this year. Let’s delve deeper to see the factors favoring the stock.

Recent Contracts and Initiatives Bode Well: In July, the company announced a second strategic agreement with Seaspan for the long-term charter of 10 7,000 TEU LNG dual-fuel container vessels to sell across ZIM's global niche trade. These vessels will be delivered to ZIM starting the first quarter of 2023 and through 2024. These are ideally sized to be employed in multiple places in which it operates.

The company also holds an option until the end of August 2021 for the long-term charter of five additional such vessels. This transition follows its initial February 2021 agreement with Seaspan for the long-term charter of 10 15,000 TEU LNG fuel vessels to serve its Asia-to-US East Coast trade. These top-of-the-line advanced vessels will allow the company to meet growing market demand. Also, investing in LNG-fueled "green" vessels resonates with the company’s continued commitment and leadership in addressing environmental issues related to the industry.

During the second quarter,   nine new lines were launched including premium high-speed services to meet the explosion in e-commerce demand and provide the viable alternative to airfreight.

The company continues to take steps to add more strength to its trans-Pacific presence, which remains a key trade through its partnership with the 2M Alliance.The  pandemic boosted ecommerce which requires sending purchases to customers. In order to cash in on the growing e-commerce trends, the company recently extended its cooperation with Alibaba.

Further, expansion in various new markets, such as Australia, New Zealand, certain African countries, East Russia also bodes well. The company is also adopting technology for enhancing operational efficiency and to this end, it is embracing big data and AI to develop advanced model for focusing on demand, planning shipping routes, automating logistics process and so on. This will optimize profit over the long term.

Strengthening Balance Sheet a Tailwind: Backed by a strong performance and solid cash generation, the company is solidifying its balance sheet. Its leverage has continued to trend downward with net leverage declining to 0.3 in second-quarter 2021 from 5.3 in the first quarter of 2019.

The company continues to prudently allocate capital to future developments including strategic investment to secure its core operating fleet, equipment expense and exploration of Merger & Acquisition (M&A) opportunities. The company also intends to share a portion of its profits with its equity holders and on this front, confirmed to distribute 30-50% of 2021 net profit as dividend in 2022. It recently paid out a special dividend along with the regular dividend.

Guidance Raise Instills Optimism: Aided by a sturdy second-quarter performance, a sustainable robust environment and the contribution of freight contract clinched at higher rates, the company once again lifted its 2021 outlook. Revised 2021 adjusted EBITDA is assumed between $4.8 billion and $5.2 billion while adjusted EBIT is envisioned between $4 billion and $4.4 billion. Based on the midpoint, the new view compared with the guidance provided in May, management’s latest forecast suggests an almost 90% increase in EBITDA guidance and a more-than-double rise in EBIT projection from the earlier provided estimate in May.

Bottomline

Overall, the stock will continue to enjoy the uptrend amid a favorable freight landscape, which is not going to subside anytime soon, given consistent global demand, limited growth in shipping capacity and the disruptive effects of local lockdowns.  Thus buying the stock may reap investors some handsome returns.