Washington International Shippers
About the industry
Zacks Transportation-Services industry hosted companies provide logistics, rental and maintenance services to carriers. Some industry players focus on global logistics management activities, including international freight transportation. Third-party logistics entities offer innovative supply chain solutions. They also focus on services such as product sourcing, warehousing, and freight forwarding. The companies have expertise in the fields of trucking, air and maritime transport. Additionally, some of the players in this industry offer domestic and international express delivery services. The well-being of firms in this industrial cohort is directly proportional to the health of the economy. A rise in manufactured and retail goods, favorable prices and improving global economic conditions bode well for industry participants.
3 key investment trends to watch in the transportation services industry
Robust Freight Demand: Improved freight market conditions are giving transport service providers a big boost. Alright, that the The Cass Freight Shipments Index fell 10.8% month-over-month in January. But the decline was due to the crisis caused by omicron. The general improving trend is evident from the fact that the measure improved in October, November and December on a monthly basis. With the decrease in omicron cases, we believe the January reading is an outlier as the cargo scenario is expected to improve in 2022. In addition, strong growth in air cargo revenue is helping cargo shipping companies like Expeditors. The increased use of charters to meet customer needs following the cancellation of passenger flights (which typically carry cargo as well as passenger baggage) generates air cargo revenue. These revenues are expected to skyrocket, at least in the short term, as air charter business is expected to maintain its upward trend.
Dividend hikes signal financial strength: With the resumption of economic activities, many companies, including some transport service providers, are reactivating their shareholder-friendly measures, such as the increase in their respective dividend distributions, which underline their financial solidity and their confidence in the company . In January, Schneider National announced a 14.3% increase in its quarterly dividend. Additionally, companies like Expeditors and Matson have announced dividend hikes in 2021.
The price of oil could rise in 2022, hurting the bottom line: The United States Energy Information Administration (EIA) in February 2022 raised its oil price forecast. The EIA, in its current month short-term energy outlook, said it expects the average Brent spot price to be $82.87 per barrel for the full year. This marks an increase from its January forecast in which it expected the average Brent spot price to be $74.95 per barrel for 2022. It forecast the same at $88.13 on average. per barrel for the first quarter of 2022. This estimate is $9.50 per barrel or 12.1%. higher than its previous forecast.
The EIA’s higher forecast for oil prices is unfavorable to transportation service providers and could hurt earnings growth. Indeed, fuel expenses represent one of the highest entry costs for these players.
Zacks’ Industry Ranking Indicates Sunny Outlook
The Zacks Transportation – Services industry is a group of 27 stocks within the entire Zacks Transport sector. The industry currently carries a Zacks industry ranking of #64, which places it in the top 26% of Zacks 250+ industries.
That of the group Zacks Industry Ranking, the Zacks Ranking average of all member stocks, indicates a bright near-term outlook. Our research shows that the top 50% of industries ranked by Zacks outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of industries ranked by Zacks is the result of a positive earnings outlook for the constituent companies overall. Looking at revisions to aggregate earnings estimates, it appears analysts are gradually gaining confidence in the earnings growth potential of this group. Clearly, the industry’s earnings estimate for 2022 is up 24.2% year over year.
Before outlining a few stocks you might want to add to your portfolio, let’s take a look at the industry’s recent stock performance and valuation.
The industry is lagging behind the S&P 500 and the sector
The Zacks transportation services industry has underperformed the Zacks S&P 500 composite as well as the broader transportation sector over the past year.
The industry fell 9.1% during this period compared to the 12.4% appreciation of the S&P 500. The broader sector fell 0.9% during the same period.
Year-over-year price performance
Current industry assessment
Based on 12-month enterprise value to EBITDA (EV/EBITDA), a multiple commonly used to value transportation services stocks, the industry is currently trading at 13.85X versus 14.11X of the S&P 500. The value is also below the sector’s 12-month EV/EBITDA of 14.87X.
Over the past five years the industry has traded as low as 24.19X, as low as 11.01X and at the median of 16.62X
Enterprise value to EBITDA ratio (TTM)
3 transportation services stocks to buy
Washington International Expeditors: Expeditors, based in Seattle, Washington, is engaged in global logistics management, including international freight forwarding and air and ocean freight consolidation. Over the past 60 days, this currently #1 ranked company has seen the Zacks consensus estimate for 2022 increase by 7.11%. The title gained 9.4% in one year.
Expeditors is supported by rising air cargo revenues. The air cargo services unit’s revenue grew 58.4% year-over-year in 2021. Efforts to reward its shareholders through dividends and buyouts are also very encouraging.
Pricing and Consensus: EXPD
Matson, a shipping and logistics services provider based in Honolulu, Hawaii, currently sports a Zacks rank of No. 1. Over the past 60 days, MATX has seen the Zacks consensus estimate for 2022 move from 86, 22% to the north.
The stock gained 49.2% year-on-year on factors including improving freight demand and cost management measures. Matson’s efforts to reward its shareholders through dividends and buybacks are also highly appreciated.
Pricing and Consensus: MATX
Schneider National, which currently holds a No. 2 Zacks rank, is aided by strength in its intermodal and logistics segments. The Intermodal segment (revenue up 17.3% in 2021) benefits from yield management, revenue per order and increased volumes, mainly on the Eastern rail network, while the he Logistics unit (revenue up 60.2% year over year) is prospering on favorable and constructive market conditions, an increase in spot mix and other factors.
SNDR has a strong liquidity position. Over the past 60 days, the stock has seen the Zacks consensus estimate for 2022 move 10.6% north. Shares of Schneider National have gained 9.2% in one year.
Pricing and Consensus: SNDR
Zacks names ‘only one best choice for doubling up’
From thousands of stocks, 5 Zacks experts have each picked their favorite to skyrocket by +100% or more in the coming months. Of these 5, Research Director Sheraz Mian selects one to have the most explosive advantage of all.
It’s a little-known chemical company that’s up 65% year-on-year, but still very cheap. With relentless demand, rising earnings estimates for 2022 and $1.5 billion for stock buybacks, retail investors could step in at any time.
This company could rival or surpass other recent Zacks stocks which are expected to double, such as Boston Beer Company which jumped +143.0% in just over 9 months and NVIDIA which jumped +175.9% in one. year.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.