The Zacks Transportation - Shipping industry is suffering from headwinds like high expenses and lingering supply-chain disruptions. Geopolitical and environmental woes represent further challenges.
Despite the uncertainty concerning demand, the industry demonstrates resilience, especially for companies prioritizing growth and operational efficiency. Among the companies in the industry that will probably survive the challenges are Viking Holdings Limited VIK, ZIM Integrated Shipping Services Ltd. ZIM, Costamare CMRE and Euroseas Limited ESEA.
Industry Overview
The companies belonging to the Zacks Transportation - Shipping industry, which is cyclical in nature, offer liquefied natural gas and crude oil marine transportation services under long-term, fixed-rate contracts with energy and utility bigwigs. Most participants focus on the seaborne transportation of crude oil and other oil products, globally. The industry also includes players that own, operate and manage liquefied natural gas carriers. Some participants are owners and operators of containerships for charter. The change in the e-commerce landscape due to the coronavirus impact implies that shippers are relying more on third-party logistics providers. The well-being of the industry participants is directly proportional to the health of the economy. The resumption of economic activities after coming to a standstill during COVID-19 bodes well for the industry.
5 Shipping Industry Trends in Focus
Supply-Chain Disruptions & High Costs: Although economic activities picked up from the pandemic gloom, supply-chain disruptions continue to dent shipping stocks. Increased operating costs are also limiting bottom-line growth. Costs will likely continue to be steep going forward due to supply-chain troubles. Shipping costs are on the rise due to the Red Sea crisis.
Upbeat FLNG Market: The floating LNG or liquefied natural gas market is growing due to its economic viability and is expected to display significant capacity growth, particularly in Africa and North America. The global FLNG market, valued at $27.27 billion in 2023, is projected to reach $53.54 billion by 2032, growing at a CAGR of 10.8% in the 2024-2032 timeframe. Factors like low unit costs, standardized designs, and improving demand for quick-to-market LNG supply are driving growth.
Environmental Woes: The shipping industry accounts for part of the world's greenhouse gas emissions, which have increased significantly in the last decade. The International Maritime Organization or IMO aims to reduce greenhouse gas emissions from ships by at least 20% by 2030 . The industry's aim to reduce carbon emissions may suffer a setback as the current Red Sea crisis compels it to use more vessels and take longer routes to ensure the smooth sailing of global maritime trade. The longer travel times are increasing total emissions from the fleet for the same amount of cargo. The disruption has naturally raised doubts about the industry's ability to meet the IMO's above mandate.
Shareholder-Friendly Measures Pick Up Pace: With the reopening of the economy, many companies, including those in the shipping domain, are reactivating their shareholder-oriented moves, thereby underlining their financial strength and confidence in the business. As investors prefer an income-generating stock, a dividend-yielding one is much coveted.
Geopolitical Woes: The shipping industry transports goods involved in world trade. Geopolitical tensions between major trading nations are disrupting trade routes, slowing goods transportation and, in turn, hurting industry players. For example, the attacks by Yemen’s Houthi militants on vessels in the Red Sea have disrupted maritime trade.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Transportation - Shipping industry lies within the broader Zacks Transportation sector. The industry currently carries a Zacks Industry Rank #217, which places it in the bottom 13% of 250 plus Zacks industries.
The group’s Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates murky 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.
Looking at the aggregate earnings estimate revisions, it appears that analysts are pessimistic about this group’s earnings growth. Before we present a few stocks that you may want to add to your portfolio, let’s look at the industry’s recent stock-market performance and its valuation picture.
Industry Underperforms S&P 500 but Outperforms Sector
The Zacks Transportation - Shipping industry has lagged the Zacks S&P 500 composite index but surpassed the broader sector over the past year.
Over this period, the industry has gained 11.4% compared with the S&P 500 Index’s northward movement of 28.6%. The broader sector has inched up 0.9% in the same timeframe.
One-Year Price Performance
Industry's Current Valuation
Based on the forward 12-month price-to-earnings (P/E- F12M), a commonly used multiple for valuing shipping stocks, the industry is currently trading at 6.89X, compared with the S&P 500’s 22.66X. It is also below the sector’s P/E (F12) reading of 15.92X.
Over the past five years, the industry has traded as high as 11.41X, as low as 4.08X and at the median of 5.94X.
4 Shipping Stocks to Keep a Tab On
ZIM Integrated Shipping based in Israel, provides service to the East Mediterranean and Israeli ports. Continued fleet expansion initiatives are likely to have driven the company’s performance. ZIM’s shareholder-friendly approach is also praiseworthy.
ZIM currently sports a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for ZIM’s 2024 and 2025 earnings has been revised 35.7% and 521.3% upward, respectively, over the past 60 days. ZIM shares have surged 99.7% in a year’s time.
You can see the complete list of today’s Zacks #1 Rank stocks here
Price and Consensus: ZIM
Viking, which went public earlier this year, is being well-served by efforts to expand its fleet size. To this end, the company recently added a new ocean ship Viking Vela to its fleet. The vessel is set to sail in the Mediterranean and Northern Europe for its inaugural season.
The Zacks Consensus Estimate for VIK’s 2024 and 2025 earnings has been revised 5.5% and 9.1% upward, respectively, over the past 60 days. The stock has a Growth Score of B at present. Viking currently sports a Zacks Rank #1.
Price and Consensus: VIK
Euroseas is an owner and operator of container carrier vessels and a provider of seaborne transportation for containerized cargoes. The company has been benefiting from profitable contracts and maintains a time charter equivalent rate or TCE of more than $30,000 per day.
The stock has gained 21.1% over the past year. The company currently sports a Zacks Rank #1. The Zacks Consensus Estimate for 2024 and 2025 earnings has increased 1.7% and 28.7%, respectively, over the past 60 days.
Price and Consensus: ESEA
Costamare owns containerships that are chartered to liner companies. The company deploys its containership fleet principally under multi-year time charters with leading liner companies that operate regularly scheduled routes between large commercial ports.
CMRE currently carries a Zacks Rank #3 (Hold). CMRE shares are being aided by the improvement in market sentiment about the dry bulk sector. Owing to the bullishness surrounding the dry bulk sector, CMRE shares have gained 27% in a year. The Zacks Consensus Estimate for VIK’s 2025 earnings has been revised 5% upward over the past 60 days.
Price and Consensus: CMRE
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