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Here's Why You Should Retain ZTO Express (ZTO) Stock Now

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ZTO Express (Cayman) Inc. (ZTO - Free Report) earnings are anticipated to register growth of 2.3% and 23.3% in 2021 and 2022, respectively. Moreover, sales are expected to register growth of 27.6% and 19.8% in 2021 and 2022, respectively.  

Key Growth Drivers

Strong performance of the core express delivery services unit is encouraging. Notably, revenues in the unit increased 37.8% year over year in the first half of 2021, owing to rise in parcel volumes. ZTO Express anticipates parcel volumes in the range of CNY22.95-CNY23.80 billion for 2021, suggesting an increase of 35-40% from the figure reported in 2020.

ZTO Express exited the second quarter with cash and cash equivalents of RMB 12.1 billion, higher than its short-term bank borrowings of $1.43 billion. This implies that the company has enough cash to pay off its short-term debt obligations.

We are impressed with the company's efforts to reward shareholders despite the current uncertainties.  As of Jun 30, 2021, ZTO Express repurchased 17.52 million ADSs at an average price of $23.17. The company paid out dividends worth $378,000 in the first half of 2021.

Primary Concern

High SG&A expenses might increase operating expenses and hurt the bottom line. Apart from other factors, increases in salaries and accrued bonuses are leading to higher SG&A expenses. Evidently, SG&A expenses increased 16.2% year over year in the first half of 2021. Costs are likely to be high in the second half of 2021 as well, thanks to high SG&A expenses.

Zacks Rank & Stocks to Consider

ZTO Express currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader Zacks Transportation sector are Knight-Swift Transportation Holdings Inc. (KNX - Free Report) , Landstar System, Inc. (LSTR - Free Report) and Herc Holdings Inc. (HRI - Free Report) . Knight-Swift and Landstar carry a Zacks Rank #2 (Buy), while Herc Holdings sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term expected earnings per share (three to five years) growth rate for Knight-Swift, Landstar and Herc Holdings is pegged at 15%, 12% and 49.2%, respectively.