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ZTO Express Gains on Parcel Volumes Amid High Operating Costs

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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. 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.

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