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The Zacks Transportation-Services industry faces headwinds from inflation-induced elevated interest rates, weak freight rates and lingering supply-chain disruptions.
Despite the shortcomings, we believe that stocks like Expeditors International of Washington EXPD, C.H. Robinson Worldwide CHRW and Matson MATX should be on investors’ watchlists.
About the Industry
The companies housed in the Zacks Transportation-Services industry offer transporters logistics, leasing and maintenance services. Some industry players focus on 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, lingering supply-chain disruptions continue to dent the industry players. Below-par freight rates are also hurting the industry’s prospects. Highlighting the weak freight demand, the Cass Freight Shipment Index declined 5.2% year over year in September. This measure has deteriorated year over year in each of the last nine months, confirming the overall declining trend.
Strong Financial Returns for Shareholders: With economic activities gaining pace from the pandemic lows, more companies are allocating their increasing cash pile through 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 Bottom line: Despite cooling inflation, we are by no means out of the woods. The hotter-than-expected inflation reading for September substantiates our view. 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 improving 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 24-stock group within the broader Zacks Transportation sector. The industry currently carries a Zacks Industry Rank #191, which places it in the bottom 24% 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 2025 earnings estimates have decreased 22.3% from 2024 estimates.
Before we present a few stocks from the industry that you may want to buy, let us take a look at the industry’s recent stock market performance and the valuation picture.
Industry Lags Sector & S&P 500
The Zacks Transportation-Services industry has underperformed the Zacks S&P 500 composite and the broader Transportation sector in a year.
The industry has gained 3.4% over this period compared with the S&P 500's appreciation of 31.1% and the broader sector’s uptick of 11.3%.
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 2.18X compared with the S&P 500's 5.04X. The value is, however, higher than the sector's trailing 12-month P/S of 1.82X.
Over the past five years, the industry has traded as high as 2.52X, as low as 1.55X and at the median of 2.02X.
Price-to-Sales Ratio (F12M)
3 Transport Services Stocks to Keep Tab on
Matson: This Honolulu, HI-based provider of ocean transportation and logistics services currently sports a Zacks Rank #1 (Strong Buy). 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 stock has seen the Zacks Consensus Estimate for 2025 earnings move 7.6% north. The stock has gained 74.5% over the past year.
You can see the complete list of today’s Zacks #1 Rank stocks here.
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 as well.
EXPD has outshined the Zacks Consensus Estimate in two of the past four quarters (missing the mark once and reporting in-line earnings on the other occasion). Over the past 60 days, the stock has seen the Zacks Consensus Estimate for 2024 earnings move 0.6% north.
Price and Consensus: EXPD
C.H. Robinson currently carries Zacks Rank #3 (Hold). It 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 as well.
Over the past 60 days, the stock has seen the Zacks Consensus Estimate for 2025 earnings move 2.6% north. The stock has gained 28% in a year.
Price and Consensus: CHRW
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