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Zacks Industry Outlook Highlights: United Parcel Service, FedEx, Atlas Air Worldwide and Air Transport Services

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·8 min read
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For Immediate Release

Chicago, IL – March 10, 2021 – Today, Zacks Equity Research discusses Air Freight & Cargo, including United Parcel Service, Inc. UPS, FedEx Corporation FDX, Atlas Air Worldwide Holdings, Inc. AAWW and Air Transport Services Group, Inc. ATSG.

Link: https://www.zacks.com/commentary/1275739/3-stocks-to-watch-from-the-promising-air-freight-cargo-space

It is a well-documented fact that stocks in the Zacks  Transportation - Air Freight and Cargo  industry are being aided immensely by the surge in e-commerce demand amid the current coronavirus-ravaged scenario.

Notably, e-commerce refers to the method of buying and selling goods and services via a software platform. Moreover, while many passenger carriers are shrinking their fleet in these coronavirus-riddled times, cargo airlines like UPS Airlines are expanding the same owing to buoyant cargo demand and astonishing growth in e commerce.

With the pandemic showing little signs of subsiding, e-commerce demand is likely to continue soaring in the near term. This implies good tidings for the companies like United Parcel ServiceFedEx and Atlas Air Worldwide Holdings.

About the Industry

The Zacks Transportation - Air Freight and Cargo industry includes players that provide air delivery and freight services. Most companies in this space are involved in offering specialized transportation and logistics services.

Apart from operating a ground fleet of multiple vehicles, some of these companies maintain an air fleet. While some players also focus on providing air transportation services for passengers and cargo, some others deliver services to entities that outsource air-cargo lifting requirements.

3 Transportation - Air Freight and Cargo Industry Trends to Watch out for

Boom in Online Shopping: The significant increase in home deliveries amid the prevalent coronavirus pandemic is a huge positive for companies like UPS and FedEx, which dominates and defines the Zacks Transportation - Air Freight and Cargo industry. Notably, the need for door-to-door delivery of essentials during this crisis is rising. Evidently, UPS reported blowout fourth-quarter 2020 results last month.

Results were aided by a boom in online shopping during the holidays with the coronavirus pandemic continuing to restrict people to their homes. Per ACI Worldwide data, e-commerce transactions across the globe increased 21% year over year in November 2020 from the November 2019 reading. This double-digit surge was mainly owing to the earlier-than-usual start of the holiday shopping season.

Cargo Carriers Make Hay: The ongoing coronavirus pandemic spelt doom for passenger airlines (that usually carry freight as well as passenger luggage). Due to lackluster air -travel demand, many passenger carriers are shrinking their fleet. This, in turn, turned out to be a blessing for the cargo carriers.

To combat the surge in e-commerce demand and also to cater to the requirement of flying cargos, such carriers are expanding their fleet. Notably, last month, UPS received delivery of the first of the 52 Airbus A300-600. Moreover, owing to upbeat demand for its cargo aircraft, Air Transport Services Group expects 2021 adjusted EBITDA to be at least $525 million, indicating an improvement of 6% from the 2020 reported figure of $497 million.

Coronavirus-Led Uncertainty Still Weighs on Industry Players: Coronavirus-induced supply-chain disruptions are persistently hurting industry players due to the slowdown in global trade activities. Despite the gradual resumption of economic activities, coronavirus-led uncertainty still remains.

Consequently, due to this economic uncertainty, FedEx’s management did not provide any guidance for fiscal 2021 while releasing second-quarter fiscal 2021 results in December. Similarly, UPS did not issue 2021 projections for revenues and earnings per share due to the market volatility, stemming from the coronavirus pandemic.

Zacks Industry Rank Indicates Sunny Prospects

The Zacks Air Freight and Cargo industry, housed within the broader Zacks Transportation sector, currently carries a Zacks Industry Rank #73. This rank places it in the top 29% 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 upbeat 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 the positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gaining confidence from this group’s earnings growth potential. Notably, the industry’s earnings estimate for 2021 has moved 4.6% north so far this year.

Given the bright near-term prospects of the industry, we will present a few stocks that investors can buy to enrich their portfolios. But it’s worth taking a look at the industry’s shareholder returns and its current valuation at first.

Industry Breezes Past the S&P 500 & the Sector

The Zacks Air Freight and Cargo industry has outperformed the Zacks S&P 500 composite and also the broader Transportation sector over the past year.

The industry has surged 111.7% over this period compared with the S&P 500’s appreciation of 42.5%. Meanwhile, the broader sector has appreciated 56.5%.

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 10.26X compared with the S&P 500’s 17.13X. It is also lower than the sector’s trailing 12-month EV/EBITDA of 15.28X.

Over the past five years, the industry has traded as high as 13.48X, as low as 6.29X and at the median of 9.51X.

3 Transportation - Air Freight and Cargo Stocks to Keep Tabs On

FedEx: FedEx is benefitting from the surge in e-commerce demand during the coronavirus-ravaged times. Revenues at the FedEx Ground segment, which handles e-commerce deliveries for many retailers, have been on the upswing for a while now. This Memphis, TN- based company currently carries a Zacks Rank #2 (Buy).

Riding on the e-commerce driven strength of its Ground unit, the stock has skyrocketed in excess of 100% over the past year. Over the past 90 days, the company has seen the Zacks Consensus Estimate for the current year being revised 12.7% upward.

UPS: Like FedEx, exponential e-commerce growth rate in the current scenario is a huge plus for UPS as well. This Atlanta-based company currently carries a Zacks Rank #3 (Hold). We are also encouraged by UPS' ability to generate a solid free cash flow.

Primarily, owing to the e-commerce surge, UPS shares have gained more than 73% over the past year. Over the past 90 days, the company has seen the Zacks Consensus Estimate for 2021 move 6.1% north.

Atlas Air Worldwide Holdings: The company is a provider of outsourced aircraft and aviation operating services. Over the past 90 days, this presently Zacks #3 Ranked company has seen the Zacks Consensus Estimate for 2021 being increased 17.3%. The stock has skyrocketed 170% over the past year.

Atlas Air is being supported by strong demand for airfreight in the coronavirus-triggered scenario. The boom in e-commerce trends amid the current scenario is a huge positive. The rise in online sales emerged as a key catalyst for the cargo carriers.

These Stocks Are Poised to Soar Past the Pandemic  

  The COVID-19 outbreak has shifted consumer behavior dramatically, and a handful of high-tech companies have stepped up to keep America running. Right now, investors in these companies have a shot at serious profits. For example, Zoom jumped 108.5% in less than 4 months while most other stocks were sinking.  

Our research shows that 5 cutting-edge stocks could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of this decade, especially for those who get in early. 

See the 5 high-tech stocks now>>

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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.

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United Parcel Service, Inc. (UPS) : Free Stock Analysis Report
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