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Zacks Industry Outlook Highlights FedEx and Air Transport Services

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For Immediate Release

Chicago, IL – April 28, 2023 – Today, Zacks Equity Research discusses FedEx (FDX - Free Report) and Air Transport Services Group (ATSG - Free Report) .

Industry: Air Freight & Cargo

Link: https://www.zacks.com/commentary/2085614/2-stocks-to-watch-from-the-promising-air-freight-cargo-industry

Prospects of Zacks Transportation - Air Freight and Cargo industry participants are being hit by uncertainties related to slowing global economic growth and an inflationary pressure-induced slowdown in consumer spending. Moreover, high fuel costs are limiting bottom-line growth.

Despite the above-mentioned challenges, we believe that the space still has fuel left in the tank, driven by cost-saving initiatives. Even though economies are reopening, consumers’ demand for online shopping is rampant. The still-impressive e-commerce demand scenario is a huge positive for industry participants. High shipping rates should also drive revenues. In view of these favorable developments surrounding the space, we advise investors to keep tabs on FedEx and Air Transport Services Group.

About the Industry

The companies belonging to 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 FDX, 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

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 shareholders, thereby underlining their financial strength and confidence in business. Among the Transportation - Air Freight and Cargo industry players, FedEx’s management announced a 10% increase in the quarterly dividend to $1.26 per share in April.

Focus on Cost-Cuts to Drive Bottom line: 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 high expenses and weaker-than-expected demand scenario.

Economic Uncertainty: Despite a strong performance by major indices in March, the fact remains that we are by no means out of the woods, especially with respect to inflation-related woes. The recent production cut by the OPEC+ oil cartel, which includes OPEC members plus Russia, has led to a surge in oil prices. This may aggravate inflationary pressure and result in heightened economic uncertainty and market volatility. The recent turmoil in the banking sector — popularly known as the engine of economic growth — also does not bode well.

Zacks Industry Rank Indicates Bright Prospects

The Zacks Air Freight and Cargo industry, housed within the broader Zacks Transportation sector, currently carries a Zacks Industry Rank #22. This rank places it in the top 9% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, the average of the Zacks Rank of all member stocks, indicates encouraging 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 top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining in confidence in this group’s earnings growth potential. The industry's earnings estimate for 2023 has inched up 1% since January-end.

Before we present a few stocks from the industry that investors can retain in their portfolios, let’s take a look at the industry’s recent stock market performance and the valuation picture.

Industry Outpaces S&P 500 and Sector

The Zacks Air Freight and Cargo industry has outperformed the Zacks S&P 500 composite and the broader Transportation sector over the past year.

The industry has decreased 2.1% over this period compared with the S&P 500’s depreciation of 3% and the broader sector’s decline of 7.6%.

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 8.97X compared with the S&P 500’s 12.43X. It is also lower than the sector’s trailing 12-month EV/EBITDA of 10.39X.

Over the past five years, the industry has traded as high as 13.58X, as low as 6.64X and at the median of 9.68X.

2 Transportation-Air Freight and Cargo Stocks to Keep an Eye On

FedEx: FDX’s efforts to reward its shareholders even in these difficult times are praiseworthy. FDX is also active on the buyback front. During fiscal 2022, FedEx repurchased shares worth $2.2 billion. FedEx's liquidity position is also solid. FDX’s efforts to cut costs are driving its bottom line.

Despite the global weakness, FDX's third-quarter fiscal 2023 earnings per share exceeded expectations, driven by its cost-cutting measures. FDX shares have gained 29.6% year to date. FDX currently sports a Zacks Rank #1 (Strong Buy).   You can see the complete list of today’s Zacks #1 Rank stocks here.

Air Transport Services Group: Wilmington, OH-based ATSG is a leading provider of aircraft leasing, and air-cargo transportation and related services globally. The strength in e-commerce demand is a tailwind for Air Transport Services Group.

ATSG, currently carrying a Zacks Rank #3 (Hold), is well-served by the buoyant demand for midsize freighters. ATSG outpaced the Zacks Consensus Estimate for earnings in three of the last four quarters (missing the mark once). The average beat was 11.58%.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.


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