Yahoo Finance 2 Stocks to Watch From the Promising Air-Freight & Cargo Industry
Prospects of Zacks Transportation - Air Freight and Cargo industry participants are being hit by uncertainties related to slowing global economic growth and an inflationary pressure-induced slowdown in consumer spending. Moreover, high fuel costs are limiting bottom-line growth.
Despite the abovementioned challenges, we believe that the space still has fuel left in the tank, driven by cost-saving initiatives. Even though economies are reopening, consumers’ demand for online shopping is rampant. The still-impressive e-commerce demand scenario is a huge positive for industry participants. High shipping rates should also drive revenues. In view of these favorable developments surrounding the space, we advise investors to keep tabs on FedEx FDX and Air Transport Services Group ATSG.
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 FDX, 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.
3 Key Trends to Watch in the Transportation-Air Freight & Cargo Industry
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 shareholders, thereby underlining their financial strength and confidence in business. Among the Transportation - Air Freight and Cargo industry players, FedEx’s management announced a 10% increase in the quarterly dividend to $1.26 per share in April.
Focus on Cost-Cuts to Drive Bottom line: 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 scenario.
Economic Uncertainty: Despite a strong performance by major indices in March, the fact remains that we are by no means out of the woods, especially with respect to inflation-related woes. The recent production cut by the OPEC+ oil cartel, which includes OPEC members plus Russia, has led to a surge in oil prices. This may aggravate inflationary pressure and result in heightened economic uncertainty and market volatility. The recent turmoil in the banking sector — popularly known as the engine of economic growth — also does not bode well.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Air Freight and Cargo industry, housed within the broader Zacks Transportation sector, currently carries a Zacks Industry Rank #22. This rank places it in the top 9% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, the average of the Zacks Rank of all member stocks, indicates encouraging 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 top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining in confidence in this group’s earnings growth potential. The industry's earnings estimate for 2023 has inched up 1% since January-end.
Before we present a few stocks from the industry that investors can retain in their portfolios, let’s take a look at the industry’s recent stock market performance and the valuation picture.
Industry Outpaces S&P 500 and Sector
The Zacks Air Freight and Cargo industry has outperformed the Zacks S&P 500 composite and the broader Transportation sector over the past year.
The industry has decreased 2.1% over this period compared with the S&P 500’s depreciation of 3% and the broader sector’s decline of 7.6%.
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 8.97X compared with the S&P 500’s 12.43X. It is also lower than the sector’s trailing 12-month EV/EBITDA of 10.39X.
Over the past five years, the industry has traded as high as 13.58X, as low as 6.64X and at the median of 9.68X.
Enterprise Value-to-EBITDA Ratio (TTM)
2 Transportation-Air Freight and Cargo Stocks to Keep an Eye on
FedEx: FDX’s efforts to reward its shareholders even in these difficult times are praiseworthy. FDX is also active on the buyback front. During fiscal 2022, FedEx repurchased shares worth $2.2 billion. FedEx's liquidity position is also solid. FDX’s efforts to cut costs are driving its bottom line.
Despite the global weakness, FDX's third-quarter fiscal 2023 earnings per share exceeded expectations, driven by its cost-cutting measures. FDX shares have gained 29.6% year to date. FDX currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus : FDX
Air Transport Services Group: Wilmington, OH-based ATSG is a leading provider of aircraft leasing, and air-cargo transportation and related services globally. The strength in e-commerce demand is a tailwind for Air Transport Services Group.
ATSG, currently carrying a Zacks Rank #3 (Hold), is well-served by the buoyant demand for midsize freighters. ATSG outpaced the Zacks Consensus Estimate for earnings in three of the last four quarters (missing the mark once). The average beat was 11.58%.
Price and Consensus: ATSG
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FedEx Corporation (FDX) : Free Stock Analysis Report
Air Transport Services Group, Inc (ATSG) : Free Stock Analysis Report
