The Zacks Transportation-Services industry includes companies offering logistics, leasing and maintenance services to transporters.
Some of the constituents are engaged in the business of global logistics management, including international freight forwarding and consolidation, for both air and ocean freight. The third-party logistics (3PL) companies offer innovative supply chain solutions. They also focus on services like product sourcing, warehousing and freight shipping.
Apart from renting out vehicles, car rental companies in the space focus on sales of value-added products and services. Some of these companies focus on offering domestic and international express delivery services.
Let’s take a look at the industry’s three major themes:
The coronavirus pandemic has spelt doom for transport service providers as demand for the services has diminished with a slowdown in global trade. The slowdown dented first-quarter 2020 results of the industry participants. Evidently, Expeditors International of Washington (EXPD) reported a 5.9% decline in revenues due to supply-chain disruptions as a result of the coronavirus pandemic. The extended closure of factories in China due to the virus outbreak dented freight volumes in the March quarter.
Sluggish freight shipments do not bode well for transport service providers. The already weak volume scenario due to the above sluggishness has been aggravated by the coronavirus crisis. Most companies are seeing softness in truckload volumes due to weak freight market conditions. Evidently, at the Global Forwarding segment of C.H. Robinson Worldwide (CHRW), first-quarter volumes contracted at the ocean and air units, thereby hurting revenues.
The coronavirus pandemic has hurt car rental companies like Hertz Global Holdings (HTZ). In fact, Hertz Global might file for bankruptcy in the United Statesas its business is being crippled by waning demand for rental hire services with most people staying indoors. Notably, Hertz failed to pay roughly $500 million to creditors by the deadline of May 4, thereby highlighting its poor financial condition. The company has been granted an extension. Amid this unprecedented crisis, the decision of Expeditors to hike its semi-annual cash dividend by 4% is encouraging and highlights its strong financial position.
Zacks Industry Rank Indicates Gloomy Prospects
The Zacks Transportation-Services industry is a 30-stock group within the broader Zacks Transportation sector. The industry currently carries a Zacks Industry Rank #194, which places it at the bottom 24% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bleak 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 bottom 50% of the Zacks-ranked industries is a result of negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group’s earnings growth potential. Since May 2019, the industry’s earnings estimate for the current year has gone down by 60.7%.
Despite the dull near-term prospects of the industry, we will present a few stocks that one can buy or retain. But it’s worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Lags S&P 500 But Outperforms Sector
The Zacks Transportation-Services industry has underperformed the Zacks S&P 500 composite and outperformed the broader Transportation Sector over the past year.
The industry has lost 0.4% of its value over this period compared with the S&P 500’s appreciation of 3%. Meanwhile, the broader sector has declined 21.2%.
One-Year Price Performance
Industry’s Current Valuation
On the basis of trailing 12-month enterprise value-to-EBITDA (EV/EBITDA), which is a commonly used multiple for valuing Transportation-services stocks, the industry is currently trading at 13.54X compared with the S&P 500’s 10.91X. It is also higher than the sector’s trailing 12-month EV/EBITDA of 7.21X.
Over the past five years, the industry has traded as high as 21.68X, as low as 8.96X and at the median of 12.73X.
Enterprise Value-to-EBITDA Ratio
Enterprise Value-to-EBITDA Ratio
The coronavirus pandemic has spelt doom for transport service providers as demand for the services has diminished with slowdown in global trade. The already weak volume scenario due to the above sluggishness has been aggravated by the coronavirus crisis. With the pandemic showing little signs of subsiding, operations of industry participants are likely to be disrupted thereby hurting results atleast in the nearterm.
Despite the adverse coronavirus impact, we present one stock with a Zacks Rank #2 (Buy) and two more stocks with a Zacks Rank #3 (Hold) that you may retain in your portfolio. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
While DSV Panalpina Group (DSDVY) carries a Zacks Rank #2, ZTO Express (Cayman) (ZTO) and Schneider National (SNDR) carry a Zacks Rank of 3.
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ZTO Express Cayman Inc. (ZTO) : Free Stock Analysis Report
Schneider National, Inc. (SNDR) : Free Stock Analysis Report
Hertz Global Holdings, Inc (HTZ) : Free Stock Analysis Report
Expeditors International of Washington, Inc. (EXPD) : Free Stock Analysis Report
DSV AS UNS ADR (DSDVY) : Free Stock Analysis Report
C.H. Robinson Worldwide, Inc. (CHRW) : Free Stock Analysis Report
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