ZTO Express (ZTO) Faces Supply Chain & Operating Cost Issues
We recently issued an updated report on ZTO Express (Cayman) Inc. ZTO.
ZTO Express' is witnessing high selling, general and administrative (SG&A) expenses, which is pushing up operating expenses. Apart from this, rise in salary and social welfare costs escalated SG&A expenses. Notably, operating costs increased 36.2% in the first half of 2020. Operating costs are likely to have been high in third-quarter 2020 too. Detailed results will be released on Nov 18.
Moreover, capex surged more than 100% year over year to RMB 2.25 billion in second-quarter 2020. Continuous rise in capex may limit bottom-line growth. Stringent government regulations and tightening policies of the Chinese market are a major hindrance to ZTO Express’ business.
Due to COVID-19 led supply-chain disruptions, the company issued a dull outlook for current-year adjusted net income. The company expects the metric in the range of RMB 4.8-RMB 5.2 billion, representing a 1.7-9.3% decline on a year-over-year basis.
Meanwhile, we expect the company's express delivery services unit is expected to have performed well in third-quarter 2020 on the back of strong parcel volumes.
Zacks Rank & Stocks to Consider
ZTO Express' currently carries a Zacks Rank #5 (Strong Sell).
Some better-ranked stocks in the Zacks Transportation are Knight-Swift Transportation Holdings KNX, FedEx Corporation FDX and Herc Holdings Inc. HRI. All the stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term expected earnings per share (three to five years) growth rate for Knight-Swift, FedEx and Herc Holdings is pegged at 15%, 12% and 6.5%, respectively.
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FedEx Corporation (FDX) : Free Stock Analysis Report
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ZTO Express Cayman Inc. (ZTO) : Free Stock Analysis Report
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