3 Transport-Service Stocks to Watch Amid Promising Industry Trends
The Zacks Transportation-Services industry is being well-served by the pick up in economic activities in the post-pandemic era. Signs of easing inflation also bode well for industry participants. Improved financial status and the uptick in shareholder-friendly activities are added tailwinds.
Given this backdrop, we believe that stocks like Expeditors International of Washington EXPD, Schneider National SNDR and Matson MATX should be on an investor’s watchlist.
About the Industry
The companies housed in the Zacks Transportation-Services industry offer transporters logistics, leasing and maintenance services. Some industry players focus on the business of global logistics management, including international freight forwarding. Third-party logistics entities provide innovative supply-chain solutions. They also focus on services like product sourcing, warehousing and freight shipping. These companies have expertise in trucking, air and ocean transportation. Some players in this industry deliver domestic and international express delivery services. The well-being of the companies in this industrial cohort is directly proportional to the health of the economy. An uptick in manufactured and retail goods, favorable pricing and improvement in global economic conditions bode well for industry participants.
3 Trends Shaping the Future of the Transportation-Services 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 through dividends and buybacks to pacify long-suffering shareholders. This underlines their financial strength and confidence in business. Among the Transportation - Services industry players, Expeditors announced a 3% increase in the quarterly dividend in May.
Supply-Chain Disruptions & High Costs: Although economic activities recovered from the pandemic gloom, supply-chain disruptions continue to dent stocks in the industry. Increased operating costs are limiting bottom-line growth. Companies are distressed by rising logistic expenses. The labor market struggled with the limited availability of labor, which is driving-related expenses. Costs will likely continue to be steep due to supply-chain troubles.
Easing of Inflationary Pressures: Inflation in the United States is easing, which is a welcome sign. Per the Bureau of Labor Statistics, the Consumer Price Index increased 4% year over year in May. The upside was lower than expected and below April’s reading. Further positive news came in when the Producer Price Index reading revealed that the decline in producer prices for May was more than expected. With inflation woes subsiding, consumer sentiment in the United States is on the mend. The stunning job growth witnessed in May instills optimism as far as economic health is concerned. All these indicators bode well for the prospects of this key industry is concerned.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Transportation - Services industry is a 26-stock group within the broader Zacks Transportation sector. The industry currently carries a Zacks Industry Rank #111, which places it in the top 44% of 250 plus Zacks industries.
The group’s Zacks Industry Rank, the average of the Zacks Rank of all member stocks, indicates dismal 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 positioning 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, analysts are optimistic about this group’s earnings growth potential. Since Apr 30, the industry’s 2023 earnings estimates have moved up 9.1%.
Given the bullish near-term outlook, there are a few stocks in the industry worth watching. Before we present those stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Lags Sector and S&P 500
The Zacks Transportation-Services industry has underperformed the Zacks S&P 500 composite and the broader Transportation sector over the past year.
The industry has declined 2.8% over this period compared with the S&P 500's appreciation of 14% and the broader sector’s uptick of 4.6%.
One-Year Price Performance
Industry's Current Valuation
Based on the forward 12-month price-to-sales, a commonly-used multiple for valuing Transportation-services stocks, the industry is currently trading at 1.8X compared with the S&P 500's 3.73X. The value is, however, higher than the sector's trailing 12-month P/S of 1.55X.
In the past five years, the industry has traded as high as 2.43X, as low as 1.50X and at the median of 2.04X.
Price-to-Sales Ratio (F12M)
3 Transport Services Stocks to Watch
Matson: This Honolulu, Hawaii-based provider of ocean transportation and logistics services currently sports a Zacks Rank #1 (Strong Buy). We are impressed by the cost-management actions undertaken by the company to drive the bottom line. Efforts to reward shareholders are commendable as well. In June,its board of directors approved a dividend hike of 3.2%, raising its quarterly cash dividend from 31 cents per share to 32 cents.
In the past 60 days, the Zacks Consensus Estimate for its 2023 earnings moved 6.22% north. The stock has gained 19.1% in the past six months.
You can see the complete list of today's Zacks #1 Rank stocks here
Price and Consensus: MATX
Expeditors currently carries a Zacks Rank #3 (Hold). This Seattle, WA-based freight forwarder is bolstered by strong air freight revenues. Efforts to reward its shareholders are commendable as well.
Expeditors has an impressive earnings track record. The bottom line surpassed the Zacks Consensus Estimate in three of the trailing four quarters (missing the mark on the other occasion), the average surprise being 3.39%. The stock has witnessed a 1.31% upward revision of the Zacks Consensus Estimate for current-year earnings in the past 60 days.
Price and Consensus: EXPD
Schneider National, currently carrying a Zacks Rank #3, is aided by strong performances in the Truckload and Intermodal segments. The Truckload segment is benefiting from Midwest Logistics Systems’ revenues, effective yield management and dedicated new business growth.
The Intermodal unit is being aided by a rise in revenue per order and brokerage volume growth. Efforts to reward its shareholders are commendable as well. SNDR’s sound liquidity position is an added positive. Schneider surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 9.38%.
Price and Consensus: SNDR
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Expeditors International of Washington, Inc. (EXPD) : Free Stock Analysis Report
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