U.S. markets closed

ZTO Express Gains on Parcel Volumes Amid High Operating Costs

Zacks Equity Research

We recently issued an updated report on ZTO Express (Cayman) ZTO. Factors like strong express delivery and good parcel volumes bode well. However, escalating costs amid coronavirus issues are major challenges.

ZTO Express is being aided by increased parcel volumes and strong performance of the company's express delivery services unit. In 2019, the top line soared 25.6% year over year to $3.17 billion (RMB 22.11 billion) primarily owing to 27.3% year-over-year surge in revenues from the company’s express delivery services unit.  Even though, coronavirus is likely to have hurt the company’s first-quarter 2020 performance, the recent revival of business due to the easing of the health peril-related concerns in China bodes well.

Rapid growth of China’s e-commerce industry and higher demand for express delivery services are aiding ZTO Express immensely. In fact, the express delivery sector in China is highly lucrative and offers significant commercial potential.  Parcel volumes at ZTO Express increased in excess of 42% to 12.1 billion in 2019. We expect robust parcel volumes to continue aiding the company’s performance. Parcel volumes for the first quarter are anticipated to exceed the year-ago quarter’s figure.

ZTO Express (Cayman) Inc. Price

 

ZTO Express (Cayman) Inc. Price

ZTO Express (Cayman) Inc. price | ZTO Express (Cayman) Inc. Quote

 

However, higher selling, general and administrative (SG&A) expenses are pushing up operating expenses. Apart from other factors, rise in salary and social welfare costs escalated SG&A expenses. In 2019, operating expenses increased 12.2% to RMB 1,158.3 million. Although ZTO Express invests significantly to expand its portfolio, such investments will increase costs that are likely to put pressure on the bottom line.

Additionally, stringent government regulations and tightening policies of the Chinese market are a major hindrance to ZTO Express’ business. Also, the domestic express delivery market is highly competitive due to the presence of big players like SF Express and STO Express. Given this backdrop, the stock might be affected if competition becomes a hindrance.

Zacks Rank and Other Stocks to consider

Currently, ZTO Express carries a Zacks Rank #2 (Buy).

Investors looking for other top-ranked stocks in the Zacks Transportation sector are GATX Corporation GATX, Teekay Tankers Ltd. TNK and Höegh LNG Partners LP HMLP.  All the stocks carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Long-term (three to five years) expected earnings per share growth rate for GATX, Teekay Tankers  and Höegh LNG is pegged at 15%, 3% and 8.5%, respectively.

The Hottest Tech Mega-Trend of All

Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.

See Zacks' 3 Best Stocks to Play This Trend >>


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
 
Teekay Tankers Ltd. (TNK) : Free Stock Analysis Report
 
ZTO Express (Cayman) Inc. (ZTO) : Free Stock Analysis Report
 
GATX Corporation (GATX) : Free Stock Analysis Report
 
Hoegh LNG Partners LP (HMLP) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research