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3 Air-Freight & Cargo Stocks to Watch in a Thriving Industry
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The Zacks Transportation - Air Freight and Cargo industry is grappling with persistent supply-chain disruptions. A challenging macroeconomic environment is characterized by inflation-induced high interest rates and the resultant weakness in package volumes.
Despite the abovementioned challenges, we believe that the space still has fuel left in the tank, especially for operators that target growth opportunities and operating efficiency initiatives. Even though economies are reopening, consumers’ thirst for online shopping is rampant. Cost-cut efforts to drive the bottom line are commendable as well. Companies like FedEx (FDX - Free Report) , GXO Logistics (GXO - Free Report) , and Air Transport Services Group (ATSG - Free Report) have been leveraging these favorable trends to their advantage.
About the Industry
The companies belonging to the Zacks Transportation - Air Freight and Cargo industry provide air delivery and freight services. Most players in the space are involved in offering specialized transportation and logistics services. Some participants offer a range of supply-chain solutions, such as freight forwarding, customs brokerage, fulfillment, returns, financial transactions and repairs. The well-being of the companies in this industrial cohort is directly proportional to the health of the economy. Leading industry players, including FedEx, transport millions of packages each day across the globe. Apart from operating a ground fleet of multiple vehicles, some of these companies maintain an air fleet. While some players focus on providing air transportation services for passengers and cargo, others deliver services to entities that outsource air-cargo lifting requirements.
4 Key Trends to Watch in the Transportation-Air Freight & Cargo Industry
Prioritizing Shareholder Returns: 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 the business. Among the Transportation – Air Freight and Cargo industry players, FDX announced a 10% increase in the quarterly dividend in June 2024.
Focus on Cost-Cuts to Drive Bottom line: Despite signs of cooling inflation, the measure is 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 weaker-than-expected demand scenarios.
Demand Slowdown: A Grave Concern: Due to the decline in shipping demand, particularly in Asia and Europe, volumes are being hurt. Lackluster volumes are hurting results of key industry players like FDX. FDX reported lower-than-expected revenues in the third quarter of fiscal 2024, mainly due to demand woes. The Express unit, FDX's largest segment, was badly hit with segmental revenues, which declined 2% year over year due to volume woes. FedEx Freight revenues declined 3% from third-quarter fiscal 2023. We expect lackluster shipping demand to have hurt FedEx’s performance in fourth-quarter fiscal 2024 as well.
E-commerce Still a Force to Reckon With: It is hardly surprising that the pace of growth of e-commerce demand has slowed from the levels witnessed at the peak of the pandemic, with the reopening of economies. However, it remains impressive, driven by the convenience associated with online shopping. The race to digitization also supports the momentum in e-commerce growth. E-commerce demand strength should continue to support the growth of the industry players.
Zacks Industry Rank Indicates Bullish Trends
The Zacks Air Freight and Cargo industry, housed within the broader Zacks Transportation sector, currently carries a Zacks Industry Rank #98. This rank places it in the top 39% of more than 245 Zacks industries.
The group’s Zacks Industry Rank, the average of the Zacks Rank of all member stocks, indicates sunny near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Before we present a few stocks from the industry that investors can buy/retain in their portfolios, let’s take a look at the industry’s recent stock market performance and the valuation picture.
Industry Lags S&P 500 and Sector
The Zacks Air Freight and Cargo industry has underperformed the Zacks S&P 500 composite as well as the broader Transportation sector over the past year.
The industry has decreased 12.1% over this period compared with the S&P 500’s gain of 24.9% and the broader sector’s appreciation of 3.1%.
One-Year Price Performance
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 10.7X compared with the S&P 500’s 18.98X. It is also lower than the sector’s trailing 12-month EV/EBITDA of 11.15X.
Over the past five years, the industry has traded as high as 13.58X, as low as 6.64X and at the median of 9.81X.
Enterprise Value-to-EBITDA Ratio (TTM)
3 Transportation-Air Freight and Cargo Stocks to Keep a Tab On
Air Transport Services is being well-served by initiatives to modernize and expand its fleet. The company expects to end 2024 with 149 aircraft (129 freighters and 20 passenger planes) in service compared with 129 at 2023-end. We are also impressed by the company's efforts to reward its shareholders through buybacks.
FedEx: FDX’s efforts to reward its shareholders even in these uncertain times are praiseworthy. Apart from paying dividends, FDX is active on the buyback front. FedEx's liquidity position is also solid. FDX’s efforts to cut costs are driving its bottom line. It presently carries a Zacks Rank of 3 (Hold).
FDX surpassed the Zacks Consensus Estimate for earnings in three of the last four quarters (missing the consensus mark in the other). The average beat is 7.8%. The Zacks Consensus Estimate for FDX’s current fiscal-year earnings suggests growth of 17.3% from the year-ago reported number.
Price and Consensus: FDX
GXO Logistics: We are impressed by GXO’s efforts to strengthen its logistics capabilities. The growth of e-commerce, automation and outsourcing is serving the company well. GXO presently carries a Zacks Rank of 3.
GXO’s earnings surpassed the Zacks Consensus Estimate for earnings in three of the last four quarters (missing the consensus mark in the other). The average beat is 1%. GXO shares have inched up 1.4% over the past month.
Price and Consensus: GXO
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3 Air-Freight & Cargo Stocks to Watch in a Thriving Industry
The Zacks Transportation - Air Freight and Cargo industry is grappling with persistent supply-chain disruptions. A challenging macroeconomic environment is characterized by inflation-induced high interest rates and the resultant weakness in package volumes.
Despite the abovementioned challenges, we believe that the space still has fuel left in the tank, especially for operators that target growth opportunities and operating efficiency initiatives. Even though economies are reopening, consumers’ thirst for online shopping is rampant. Cost-cut efforts to drive the bottom line are commendable as well. Companies like FedEx (FDX - Free Report) , GXO Logistics (GXO - Free Report) , and Air Transport Services Group (ATSG - Free Report) have been leveraging these favorable trends to their advantage.
About the Industry
The companies belonging to the Zacks Transportation - Air Freight and Cargo industry provide air delivery and freight services. Most players in the space are involved in offering specialized transportation and logistics services. Some participants offer a range of supply-chain solutions, such as freight forwarding, customs brokerage, fulfillment, returns, financial transactions and repairs. The well-being of the companies in this industrial cohort is directly proportional to the health of the economy. Leading industry players, including FedEx, transport millions of packages each day across the globe. Apart from operating a ground fleet of multiple vehicles, some of these companies maintain an air fleet. While some players focus on providing air transportation services for passengers and cargo, others deliver services to entities that outsource air-cargo lifting requirements.
4 Key Trends to Watch in the Transportation-Air Freight & Cargo Industry
Prioritizing Shareholder Returns: 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 the business. Among the Transportation – Air Freight and Cargo industry players, FDX announced a 10% increase in the quarterly dividend in June 2024.
Focus on Cost-Cuts to Drive Bottom line: Despite signs of cooling inflation, the measure is 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 weaker-than-expected demand scenarios.
Demand Slowdown: A Grave Concern: Due to the decline in shipping demand, particularly in Asia and Europe, volumes are being hurt. Lackluster volumes are hurting results of key industry players like FDX. FDX reported lower-than-expected revenues in the third quarter of fiscal 2024, mainly due to demand woes. The Express unit, FDX's largest segment, was badly hit with segmental revenues, which declined 2% year over year due to volume woes. FedEx Freight revenues declined 3% from third-quarter fiscal 2023. We expect lackluster shipping demand to have hurt FedEx’s performance in fourth-quarter fiscal 2024 as well.
E-commerce Still a Force to Reckon With: It is hardly surprising that the pace of growth of e-commerce demand has slowed from the levels witnessed at the peak of the pandemic, with the reopening of economies. However, it remains impressive, driven by the convenience associated with online shopping. The race to digitization also supports the momentum in e-commerce growth. E-commerce demand strength should continue to support the growth of the industry players.
Zacks Industry Rank Indicates Bullish Trends
The Zacks Air Freight and Cargo industry, housed within the broader Zacks Transportation sector, currently carries a Zacks Industry Rank #98. This rank places it in the top 39% of more than 245 Zacks industries.
The group’s Zacks Industry Rank, the average of the Zacks Rank of all member stocks, indicates sunny near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Before we present a few stocks from the industry that investors can buy/retain in their portfolios, let’s take a look at the industry’s recent stock market performance and the valuation picture.
Industry Lags S&P 500 and Sector
The Zacks Air Freight and Cargo industry has underperformed the Zacks S&P 500 composite as well as the broader Transportation sector over the past year.
The industry has decreased 12.1% over this period compared with the S&P 500’s gain of 24.9% and the broader sector’s appreciation of 3.1%.
One-Year Price Performance
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 10.7X compared with the S&P 500’s 18.98X. It is also lower than the sector’s trailing 12-month EV/EBITDA of 11.15X.
Over the past five years, the industry has traded as high as 13.58X, as low as 6.64X and at the median of 9.81X.
Enterprise Value-to-EBITDA Ratio (TTM)
3 Transportation-Air Freight and Cargo Stocks to Keep a Tab On
Air Transport Services is being well-served by initiatives to modernize and expand its fleet. The company expects to end 2024 with 149 aircraft (129 freighters and 20 passenger planes) in service compared with 129 at 2023-end. We are also impressed by the company's efforts to reward its shareholders through buybacks.
Over the past 60 days, the Zacks Consensus Estimate for ATSG’s current-year earnings has increased 15.1% to 84 cents per share. ATSG currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
Price and Consensus: ATSG
FedEx: FDX’s efforts to reward its shareholders even in these uncertain times are praiseworthy. Apart from paying dividends, FDX is active on the buyback front. FedEx's liquidity position is also solid. FDX’s efforts to cut costs are driving its bottom line. It presently carries a Zacks Rank of 3 (Hold).
FDX surpassed the Zacks Consensus Estimate for earnings in three of the last four quarters (missing the consensus mark in the other). The average beat is 7.8%. The Zacks Consensus Estimate for FDX’s current fiscal-year earnings suggests growth of 17.3% from the year-ago reported number.
Price and Consensus: FDX
GXO Logistics: We are impressed by GXO’s efforts to strengthen its logistics capabilities. The growth of e-commerce, automation and outsourcing is serving the company well. GXO presently carries a Zacks Rank of 3.
GXO’s earnings surpassed the Zacks Consensus Estimate for earnings in three of the last four quarters (missing the consensus mark in the other). The average beat is 1%. GXO shares have inched up 1.4% over the past month.
Price and Consensus: GXO