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3 Transport-Service Stocks to Bet on Despite Industry Hiccups
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The Zacks Transportation-Services industry faces headwinds, ranging from inflation-induced elevated interest rates, weak freight rates and supply-chain disruptions.
Despite the shortcomings, we believe that stocks like Expeditors International of Washington (EXPD - Free Report) , C.H. Robinson Worldwide (CHRW - Free Report) and Matson (MATX - Free Report) should be on an investor’s watchlist.
About the Industry
The companies housed in the Zacks Transportation-Services industry offer transporters logistics, leasing and maintenance services. Some industry players focus on the business of global logistics management, including international freight forwarding. Third-party logistics entities provide innovative supply-chain solutions. They also focus on services like product sourcing, warehousing and freight shipping. These companies have expertise in trucking, air and ocean transportation. Some players in this industry deliver domestic and international express delivery services. The well-being of the companies in this industrial cohort is directly proportional to the health of the economy. An uptick in manufactured and retail goods, favorable pricing and improvement in global economic conditions bode well for industry participants.
3 Trends Shaping the Future of the Transportation-Services Industry
Supply-Chain Disruptions & Weak Freight Rates: Although economic activities picked up from the pandemic gloom, supply-chain disruptions continue to dent stocks in the industry. Below-par freight rates are also hurting the industry’s prospects. Reflecting the weak freight demand, Cass Freight Shipments Index declined 1.8% month on month in June. This measure has deteriorated month on month in seven of the last nine months, which confirms the overall declining trend.
Strong Financial Returns for Shareholders: With economic activities gaining pace from the pandemic lows, more and more companies are allocating their increasing cash pile by way of dividends and buybacks to pacify long-suffering shareholders. This underlines their financial strength and confidence in business. Among the Transportation - Services industry players, Expeditors announced a 5.8% increase in the quarterly dividend in May 2024. Matson announced a quarterly dividend increase in June.
Focus on Cost Cuts to Drive the Bottom Line: Despite signs of cooling inflation, we are by no means out of the woods. In fact, with inflation still well above the Fed’s 2% target. We note that the industry has been experiencing significant levels of inflation, including higher prices for labor, freight and fuel. The industry players are focusing on cost-cutting measures and making efforts to improve productivity and efficiency to mitigate high expenses and a weaker-than-expected demand scenario.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Transportation - Services industry is a 25-stock group within the broader Zackssector. The industry currently carries a Zacks Industry Rank #178, which places it in the bottom 29% of 250 plus 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 outperforms 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 gradually losing confidence in this group’s earnings growth potential. The industry's earnings estimate for 2024 has decreased by 36% since April-end.
Before we present a few stocks from the industry that you may want to buy, let’s take a look at the industry’s recent stock market performance and the valuation picture.
Industry Lags Sector and S&P 500
The Zacks Transportation-Services industry has underperformed the Zacks S&P 500 composite and the broader Transportation sector in a year’s time.
The industry has declined 13.7% over this period compared with the broader sector’s decline of 4.7%. The S&P 500 has risen 17.5% in the said time frame.
One-Year Price Performance
Industry's Current Valuation
Based on the forward 12-month price-to-sales, a commonly used multiple for valuing Transportation-services stocks, the industry is currently trading at 1.84X compared with the S&P 500's 4.87X. The value is, however, higher than the sector's trailing 12-month P/S of 1.75X.
Over the past five years, the industry has traded as high as 2.52X, as low as 1.58X and at the median of 2.03X.
Price-to-Sales Ratio (F12M)
3 Transport Services Stocks to Buy
C.H. Robinson, currently sporting a Zacks Rank #1 (Strong Buy), operates as an asset-light logistics player. Efforts to control costs bode well for this freight broker. Measures to reward CHRW's shareholders instill further confidence in the stock. CHRW’s liquidity position is encouraging, too.
Over the past 60 days, the Zacks Consensus Estimate for 2024 earnings has moved 11.9% north. The stock has gained 31% over the past six months.
Matson: This Honolulu, Hawaii-based provider of ocean transportation and logistics services currently sports a Zacks Rank #1. We are impressed by the cost-management actions taken by the company to drive its bottom line. Efforts to reward its shareholders are commendable as well.
Over the past 60 days, the Zacks Consensus Estimate for 2024 earnings has moved 18.5% north. The stock has gained 34.4% in the past year.
Price and Consensus: MATX
Expeditors currently carries a Zacks Rank #2 (Buy). This Seattle, WA-based freight forwarder’s efforts to reward its shareholders are commendable. EXPD’s liquidity position is encouraging, too.
EXPD has outshined the Zacks Consensus Estimate in only one of the past four quarters (missing the mark twice and reporting in-line earnings on the other occasion). Over the past 60 days, the Zacks Consensus Estimate for 2024 earnings has moved 2.3% north.
Price and Consensus: EXPD
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3 Transport-Service Stocks to Bet on Despite Industry Hiccups
The Zacks Transportation-Services industry faces headwinds, ranging from inflation-induced elevated interest rates, weak freight rates and supply-chain disruptions.
Despite the shortcomings, we believe that stocks like Expeditors International of Washington (EXPD - Free Report) , C.H. Robinson Worldwide (CHRW - Free Report) and Matson (MATX - Free Report) should be on an investor’s watchlist.
About the Industry
The companies housed in the Zacks Transportation-Services industry offer transporters logistics, leasing and maintenance services. Some industry players focus on the business of global logistics management, including international freight forwarding. Third-party logistics entities provide innovative supply-chain solutions. They also focus on services like product sourcing, warehousing and freight shipping. These companies have expertise in trucking, air and ocean transportation. Some players in this industry deliver domestic and international express delivery services. The well-being of the companies in this industrial cohort is directly proportional to the health of the economy. An uptick in manufactured and retail goods, favorable pricing and improvement in global economic conditions bode well for industry participants.
3 Trends Shaping the Future of the Transportation-Services Industry
Supply-Chain Disruptions & Weak Freight Rates: Although economic activities picked up from the pandemic gloom, supply-chain disruptions continue to dent stocks in the industry. Below-par freight rates are also hurting the industry’s prospects. Reflecting the weak freight demand, Cass Freight Shipments Index declined 1.8% month on month in June. This measure has deteriorated month on month in seven of the last nine months, which confirms the overall declining trend.
Strong Financial Returns for Shareholders: With economic activities gaining pace from the pandemic lows, more and more companies are allocating their increasing cash pile by way of dividends and buybacks to pacify long-suffering shareholders. This underlines their financial strength and confidence in business. Among the Transportation - Services industry players, Expeditors announced a 5.8% increase in the quarterly dividend in May 2024. Matson announced a quarterly dividend increase in June.
Focus on Cost Cuts to Drive the Bottom Line: Despite signs of cooling inflation, we are by no means out of the woods. In fact, with inflation still well above the Fed’s 2% target. We note that the industry has been experiencing significant levels of inflation, including higher prices for labor, freight and fuel. The industry players are focusing on cost-cutting measures and making efforts to improve productivity and efficiency to mitigate high expenses and a weaker-than-expected demand scenario.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Transportation - Services industry is a 25-stock group within the broader Zackssector. The industry currently carries a Zacks Industry Rank #178, which places it in the bottom 29% of 250 plus 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 outperforms 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 gradually losing confidence in this group’s earnings growth potential. The industry's earnings estimate for 2024 has decreased by 36% since April-end.
Before we present a few stocks from the industry that you may want to buy, let’s take a look at the industry’s recent stock market performance and the valuation picture.
Industry Lags Sector and S&P 500
The Zacks Transportation-Services industry has underperformed the Zacks S&P 500 composite and the broader Transportation sector in a year’s time.
The industry has declined 13.7% over this period compared with the broader sector’s decline of 4.7%. The S&P 500 has risen 17.5% in the said time frame.
One-Year Price Performance
Industry's Current Valuation
Based on the forward 12-month price-to-sales, a commonly used multiple for valuing Transportation-services stocks, the industry is currently trading at 1.84X compared with the S&P 500's 4.87X. The value is, however, higher than the sector's trailing 12-month P/S of 1.75X.
Over the past five years, the industry has traded as high as 2.52X, as low as 1.58X and at the median of 2.03X.
Price-to-Sales Ratio (F12M)
3 Transport Services Stocks to Buy
C.H. Robinson, currently sporting a Zacks Rank #1 (Strong Buy), operates as an asset-light logistics player. Efforts to control costs bode well for this freight broker. Measures to reward CHRW's shareholders instill further confidence in the stock. CHRW’s liquidity position is encouraging, too.
Over the past 60 days, the Zacks Consensus Estimate for 2024 earnings has moved 11.9% north. The stock has gained 31% over the past six months.
Price and Consensus: CHRW
You can see the complete list of today’s Zacks #1 Rank stocks here.
Matson: This Honolulu, Hawaii-based provider of ocean transportation and logistics services currently sports a Zacks Rank #1. We are impressed by the cost-management actions taken by the company to drive its bottom line. Efforts to reward its shareholders are commendable as well.
Over the past 60 days, the Zacks Consensus Estimate for 2024 earnings has moved 18.5% north. The stock has gained 34.4% in the past year.
Price and Consensus: MATX
Expeditors currently carries a Zacks Rank #2 (Buy). This Seattle, WA-based freight forwarder’s efforts to reward its shareholders are commendable. EXPD’s liquidity position is encouraging, too.
EXPD has outshined the Zacks Consensus Estimate in only one of the past four quarters (missing the mark twice and reporting in-line earnings on the other occasion). Over the past 60 days, the Zacks Consensus Estimate for 2024 earnings has moved 2.3% north.
Price and Consensus: EXPD