Shares of ZIM Integrated Shipping Services Ltd. ZIM have performed brilliantly in 2024, gaining 86.6% year to date. Owing to this solid rally, shares of this shipping company have easily surpassed its industry’s modest 8.7% gain and the Zacks Transportation sector’s 0.6% decline.
ZIM shares have performed much better than those of fellow industry players, Seanergy Maritime Holdings SHIP and Costamare CMRE. Shares of Seanergy Maritime have declined 9.3%, while those of Costamare have increased 21.3% year to date.
YTD Price Comparison
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Given ZIM’s impressive rally, investors might wonder if the opportunity to add this high-flying stock to their portfolio has passed. However, we believe ZIM has a lot going in its favor, and this rally is far from over. In fact, the stock holds substantial upside potential as we head into 2025. ZIM currently has a Momentum Score of A. Technical indicators suggest continued strong performance for ZIM. The stock trades above its 200-day moving average, signaling robust upward momentum and price stability. This technical strength underscores positive market sentiment and confidence in ZIM’s prospects.
200-Day Moving Average Data of ZIM Stock
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Reasons for Staying Bullish on ZIM Stock
Red Sea Crisis-Induced High Freight Rates: Elevated freight rates due to the Red Sea Shipping crisis are turning out to be a huge positive for ZIM. The attacks by Yemen’s Houthi militants on vessels in the Red Sea have prompted many shipping companies, including ZIM, to pause transit through this route. They are using the longer and costlier route around the Cape of Good Hope in South Africa rather than going through the Suez Canal. Reduced container availability due to the Red Sea tensions has resulted in higher freight costs. Driven by elevated freight rates, ZIM’s profits, revenues and carried volumes for the first nine months of 2024 have surged. Rates are likely to remain high for quite some time, which is likely to translate into further upside potential for ZIM.
Impressive Business Model: The shipping company’s asset-light model, which means that the focus is more on leasing rather than owning vessels, allows it to adjust capacity rapidly in response to market changes. This practice helps it boost profits during high demand.
ZIM’s focus on niche markets and high-margin trade routes helps it avoid crowded, low-margin segments, thereby maintaining strong pricing power. This, too, aids profitability. The shipping company’s operational efficiency is being aided by investments in digitalization and innovative technologies.
Shareholder-Friendly Approach: ZIM’s shareholder-friendly approach throws light on its financial prosperity. The shipping company’s high dividend yield is a huge positive for income-seeking investors. This highlights confidence in its cash flow and prospects. Sticking to its policy of returning 30% of net income to its shareholders, in third-quarter 2024, ZIM’s board declared a regular dividend of approximately $340 million or $2.81 per ordinary share. In the process, the shipping company’s quarterly dividend tripled quarter over quarter. Additionally, the board declared a special dividend of approximately $100 million, translating into 84 cents per share. The total payout, therefore, comes in at $3.65 per share.
Hiked Outlook: In November, ZIM raised its guidance for 2024 adjusted EBITDA. The shipping company expects the metric to be $3.3-$3.6 billion (compared with the earlier stated $2.6-$3 billion). Adjusted EBIT (earnings before interest and taxes) for 2024 is expected to be $2.15-$2.45 billion. The increased outlook further reflects management’s confidence in the company’s prospects and makes us believe that ZIM will still be a solid bet going forward.
Earnings Estimate Revision Favoring ZIM Stock
Reflecting the positive sentiment around ZIM, the Zacks Consensus Estimate for earnings per share for full-year 2024 and 2025 has seen upward revisions over the past 60 days. The positive revision trend reflects confidence in ZIM’s ability to continue delivering strong financial performances.
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The company’s long-term (3-5 years) earnings growth rate is an impressive 26.2%, higher than its industry’s 19.6%.
ZIM Shares Trading at a Discount
ZIM stock is quite cheap, as its Value Score of A does not suggest a stretched valuation at this moment.
In terms of price-to-sales (forward 12-month), ZIM is trading at 0.32X, lower than its 3-year median of 0.36X and the industry’s 2.01X.
Zacks Investment Research
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ZIM Still a Smart Buy for Investors
ZIM is well-positioned for continued success in 2025. ZIM continues to benefit from upbeat global trade and container shipping demand. The Red Sea crisis represents a huge tailwind for the shipping company, as elaborated throughout this write-up.
With many positives driving the stock, ZIM presents a compelling investment opportunity now. This Zacks Rank #1 (Strong Buy) undervalued stock is an ideal candidate for addition to one’s portfolio. You can see the complete list of today’s Zacks #1 Rank stocks here.
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