Expeditors International of Washington (EXPD): A Closer Look at Its Overvaluation
Expeditors International of Washington Inc (NASDAQ:EXPD) experienced a slight loss of -0.76% on September 14, 2023, contributing to a 3-month loss of -1.31%. With an Earnings Per Share (EPS) (EPS) of 6.67, the question arises: is the stock modestly overvalued? This article provides an in-depth valuation analysis of Expeditors International of Washington (NASDAQ:EXPD), and we encourage you to read on for valuable insights.
Company Overview
Expeditors International of Washington is a non-asset-based third-party logistics provider, primarily focused on international freight forwarding. It employs sophisticated IT systems and contracts with airlines and ocean carriers to move customers' freight across the globe. The firm operates more than 200 full-service office locations worldwide, in addition to numerous satellite locations. In 2022, Expeditors derived 34% of consolidated net revenue from airfreight, 30% from ocean freight, and 36% from customs brokerage and other services.
Currently, the company's stock price stands at $117.38, while its GF Value, an estimation of fair value, is $97.86. This comparison suggests that the stock may be modestly overvalued.
Understanding GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded. This value is calculated based on three factors: historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) at which the stock has traded, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of business performance.
According to the GF Value, the stock of Expeditors International of Washington Inc (NASDAQ:EXPD) is modestly overvalued. If the share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. Conversely, if the share price is significantly below the GF Value calculation, the stock may be undervalued and have higher future returns. As such, given that Expeditors International of Washington is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth.
Financial Strength
Before investing in a company, it's crucial to check its financial strength. Investing in companies with poor financial strength carries a higher risk of permanent loss. The cash-to-debt ratio and interest coverage are great ways to understand a company's financial strength. Expeditors International of Washington has a cash-to-debt ratio of 3.22, which is better than 83.67% of 937 companies in the Transportation industry. The overall financial strength of Expeditors International of Washington is 9 out of 10, indicating strong financial health.
Profitability and Growth
Investing in profitable companies carries less risk, especially when these companies have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Expeditors International of Washington has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $12.60 billion and Earnings Per Share (EPS) of $6.67. Its operating margin of 10.93% is better than 59.47% of 935 companies in the Transportation industry. Overall, GuruFocus ranks Expeditors International of Washington's profitability as strong.
Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Expeditors International of Washington's 3-year average revenue growth rate is better than 89.88% of 909 companies in the Transportation industry. Expeditors International of Washington's 3-year average EBITDA growth rate is 35.4%, which ranks better than 79.58% of 818 companies in the Transportation industry.
ROIC vs WACC
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Expeditors International of Washington's ROIC is 48.81 while its WACC came in at 10.92.
Conclusion
In conclusion, the stock of Expeditors International of Washington is believed to be modestly overvalued. The company's financial condition is strong, and its profitability is strong. Its growth ranks better than 79.58% of 818 companies in the Transportation industry. To learn more about Expeditors International of Washington stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
