On Jun 24, 2014, we updated our research report on leading third
party logistics provider
Expeditors International of Washington Inc.
). We remain encouraged by the company's non-asset based model and
diversified freight forwarding solutions, while growth in the
customs brokerage business continue to boost its margins. However,
we remain cautious about the near-term softness in ocean freight
demand. Expeditors currently carries a Zacks Rank #3 (Hold).
Over the long term, we expect Expeditors to outperform its peers
based on its strategic initiatives, superior business and growing
supply chains. Volume improvement rather than price serves as the
primary growth driver for the company.
Expeditors airfreight volume is reflecting an improving trend
and can grow further, if the Trans-Pacific trade lane between the
U.S. and China and the general global economic scenario recovers.
Further, the company is also seeking expansion in the high-margin
customs-brokerage business that depends upon growing global trade
and increased import and export activity around the globe.
The company is undertaking strong cost-control measures which
are likely to remain accretive to margins. Additionally,
Expeditors' strong cash balance will not only drive its investment
plans but also provide higher returns to its shareholders in the
form of dividend payments or share repurchases. In May 2014, the
company again hiked its dividend by 6.67% to $0.62.
Expeditor derives a significant part of its revenue from
customers in industries with shipping patterns tied closely to
consumer demand and production schedules. Weak consumer and
business demand and delay in manufacturing might hurt the company's
revenues. Lowering of 2014 U.S. GDP growth rate by FOMC (Federal
Open Market Committee) also remains a concern for Expeditors.
An overcapacity situation as compared to demand within the
industry indicates a seasonal slowdown, thus pressurizing the
carrier's rate. We believe that given increased pricing discipline
among ocean shippers and overcapacity situation within the sector,
ocean freight yields (revenue per unit) will likely remain volatile
throughout 2014. Furthermore, international air and ocean freight
forwarding and customs brokerage are intensely competitive and are
expected to remain so in the foreseeable future.
Better-ranked stocks that warrant a look in this sector include
Trinity Industries Inc.
Canadian Pacific Railway Limited
). TRN sports a Zacks Rank #1 (Strong Buy), while CSX and CP carry
a Zacks Rank #2 (Buy).
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