Zacks Industry Outlook Highlights FedEx, GXO Logistics and Air Transport Services
For Immediate Release
Chicago, IL – October 5, 2023 – Today, Zacks Equity Research discusses FedEx FDX, GXO Logistics GXO and Air Transport Services Group ATSG.
Industry: Air Freight & Cargo
Link: https://www.zacks.com/commentary/2159876/3-air-freight-cargo-stocks-to-watch-amid-prevailing-concerns
Prospects of participants of the Zacks Transportation - Air Freight and Cargo industry are being hit by uncertainties related to slowing global economic growth and inflationary pressure. The recent sharp rise in oil price after Saudi Arabia and Russia extended voluntary supply cuts will hit the bottom line.
Despite the above-mentioned challenges, we believe that the space still has fuel left in the tank, especially for operators that target growth opportunities and operating efficiency initiatives. Even though economies are reopening, consumers’ thirst for online shopping is rampant. The still impressive e-commerce demand scenario is a huge positive for the industry participants. Cost-cut efforts to drive the bottom line are commendable as well. In view of these favorable developments, we advise investors to focus on FedEx, GXO Logistics and Air Transport Services Group.
About the Industry
The companies housed in the Zacks Transportation - Air Freight and Cargo industry provide air delivery and freight services. Most players in the space are involved in offering specialized transportation and logistics services. Some participants offer a range of supply-chain solutions, such as freight forwarding, customs brokerage, fulfillment, returns, financial transactions and repairs.
The well-being of the companies in this industrial cohort is directly proportional to the health of the economy. Leading industry players, including FDX, transport millions of packages each day across the globe. Apart from operating a ground fleet of multiple vehicles, some of these companies maintain an air fleet. While some players focus on providing air transportation services for passengers and cargo, others deliver services to entities that outsource air cargo lifting requirements.
4 Key Investing Trends to Watch in the Transportation-Air Freight & Cargo Industry
E-commerce Still a Force to Reckon With: It is hardly surprising that the pace of growth of e-commerce demand has slowed from the levels witnessed at the peak of the pandemic, with the reopening of economies. However, it remains impressive, driven by the convenience associated with online shopping. The race to digitization also supports the momentum in e-commerce growth. E-commerce demand should continue to support the growth of the industry players.
Supply-Chain Disruptions & High Costs: Although economic activities picked up from the pandemic gloom, supply-chain disruptions continue to dent stocks in the industry. Increased operating costs are also limiting bottom-line growth. Costs will likely continue to be steep going forward due to supply chain and labor troubles. Also, since fuel expenses represent a key input cost for any transportation player, operating expenses are on the way up given the rise in fuel cost.
Economic Uncertainty: Inflation remains hot and the related concerns of an economic slowdown have gained ground lately, leading to turbulence. Though the Fed did not hike interest rates in September, Fed Chair Jerome Powell said that the fight against inflation is far from over and that at least another quarter percentage interest rate hike would be required in the current year.
Focus on Cost Cuts to Drive the Bottom line: The industry has been experiencing significant levels of inflation, including higher prices for labor, freight and fuel. Industry players are focusing on cost-cutting measures and making efforts to improve productivity and efficiency, to mitigate high expenses and weaker-than-expected inflation-led demand scenario. Despite the global weakness, FDX's first-quarter fiscal 2024 earnings per share exceeded expectations, driven by its cost-cutting measures.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Air Freight and Cargo industry, housed within the broader Zacks Transportation sector, currently carries a Zacks Industry Rank #229. This rank places it in the bottom 7% of more than 250 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 outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are becoming pessimistic about this group’s earnings growth potential. While the industry’s earnings estimate for 2023 has gone down 16.7% in the past year, the same for 2024 has fallen 4.5% over the said timeframe.
Despite the dim near-term prospects of the industry, we will present a few stocks that you may want to consider for your portfolio. 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 Air Freight and Cargo industry has underperformed the Zacks S&P 500 composite while surpassing the broader Transportation sector over the past year.
The industry has increased 7.4% over this period compared with the S&P 500’s rise of 12% and the broader sector’s appreciation of 4.8%.
Industry's Current Valuation
On the basis of the trailing 12-month enterprise value-to-EBITDA (EV/EBITDA), a commonly used multiple for valuing Transportation-Air Freight and Cargo stocks, the industry is currently trading at 9.6X compared with the S&P 500’s 12.8X. It is also lower than the sector’s trailing 12-month EV/EBITDA of 10X.
Over the past five years, the industry has traded as high as 13.59X, as low as 6.65X and at the median of 9.61X.
3 Transportation-Air Freight and Cargo Stocks to Keep a Tab On
All three stocks carry a Zacks Rank #3 (Hold) presently.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
FedEx: FDX’s efforts to reward its shareholders even in these difficult times are praiseworthy. Apart from paying dividends, FDX is active on the buyback front. During fiscal 2022, FedEx repurchased shares worth $2.2 billion. FedEx's liquidity position is also solid. FDX’s efforts to cut costs are driving its bottom line.
The company pays out a quarterly dividend of $1.26 ($5.04 annualized) per share, giving a 1.9% yield at the current stock price. FDX surpassed the Zacks Consensus Estimate for earnings in each of the last four quarters, by an average of 16.94%. The Zacks Consensus Estimate for FDX’s current fiscal-year earnings suggests growth of 3.93% from the year-ago reported number.
GXO Logistics: We are impressed by GXO’s efforts to strengthen its logistics capabilities. The rapid growth of e-commerce, automation and outsourcing is serving the company well.
GXO’s earnings outshined the Zacks Consensus Estimate in each of the last four quarters, the average beat being 9.56%. GXO shares have gained 44.9% in a year’s time.
Air Transport Services Group: Wilmington, OH-based ATSG is a leading provider of aircraft leasing, and air-cargo transportation and related services globally. Over the past 60 days, Air Transport Services has seen the Zacks Consensus Estimate for 2023 being raised by 16.05%.
The strength in e-commerce demand is a tailwind for Air Transport Services Group. ATSG is well-served by the buoyant demand for midsize freighters.
Why Haven’t You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +6.2 average gain per year. Amazingly, they soared with average gains of +46.4%, +49.5% and +55.2% per year. Today you can access their live picks without cost or obligation.
See Stocks Free >>
Join us on Facebook: https://www.facebook.com/ZacksInvestmentResearch/
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Media Contact
Zacks Investment Research
800-767-3771 ext. 9339
support@zacks.com
https://www.zacks.com
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
FedEx Corporation (FDX) : Free Stock Analysis Report
Air Transport Services Group, Inc (ATSG) : Free Stock Analysis Report
GXO Logistics, Inc. (GXO) : Free Stock Analysis Report
