Shares of Expeditors International of Washington, Inc. (EXPD - Free Report) have fared well in a year’s time. The stock has gained 21.3% compared with the industry’s rise of 11.9%.
The company has an impressive surprise history. It beat earnings estimates in each of the trailing four quarters, the average being 10.2%.
Moreover, the company’s efforts to reward shareholders in the form of dividends and share repurchases are impressive. In May, the company announced a 7.1% hike in semi-annual cash dividend to 45 cents per share (annualized 90 cents). On the buyback front, the company repurchased 5.8 million shares at an average price of $70.92 as of Jun 30, 2018.
Furthermore, Expeditors’ trailing 12-month return on equity (ROE) underlines its growth potential and reflects efficient utilization of shareholders’ funds. The company’s ROE of 26.7% compares favorably with ROE of 17.3% for its industry and 17.1% for the S&P 500 index.
Additionally, the company’s healthy balance sheet is a positive. An asset-light business model allows Expeditors to maintain a debt-free balance sheet. The company also has an impressive Growth Score of B.
In spite of these tailwinds, the company has its own share of challenges. High-operating expenses are a major headwind, which can hurt the bottom line in the upcoming quarters.
The stock appears to be overvalued compared with the market at large in terms of enterprise value (EV) to EBITDA ratio. The company currently has a trailing 12-month EV/EBITDA ratio of 15.3 compared with the S&P 500's 12.
We are also concerned about the performance of Airfreight Service segment. Below-par performance of this key sector might hurt the stock significantly as major portion of revenues are generated from this source. The challenging conditions in the airfreight services market due to overcapacity woes are concerns. We are also worried about the adverse impact of foreign currency movements, as the company operates globally.
Considering these headwinds, we advise investors to wait for a better entry point before investing in the shares of Expeditors. The company’s Zacks Rank #3 (Hold) seems to suggest the same.
Stocks to Consider
A few better-ranked stocks in the broader Transportation Sector are Matson, Inc (MATX - Free Report) , Trinity Industries, Inc (TRN - Free Report) and Old Dominion Freight Line, Inc (ODFL - Free Report) . While Old Dominion carries a Zacks Rank #2 (Buy), Matson and Trinity sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Shares of Matson, Trinity and Old Dominion have gained 38%, 14.8% and 8.1% in the past six months, respectively.
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