Despite macroeconomic challenges causing uncertainty in demand, the industry demonstrates resilience, especially for companies prioritizing growth and operational efficiency. Among the companies in the industry that are likely to survive the challenges are FedEx Corporation 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 FedEx, 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
Economic Uncertainty & Tariff Concerns Ail Industry: A rise in inflation over the past couple of months has unsettled markets as investors worry that the Federal Reserve could delay its next rate cut till the second half of the year. This could have an adverse effect on the economy’s health. With inflation remaining a concern, risks associated with an economic slowdown and geopolitical tensions dampen the prospects of stocks belonging to this industrial cohort. Sluggish economic growth and inflationary woes are likely to hurt consumer spending. These do not bode well for the industry participants. Also, the imposition of tariffs is anticipated to lead to higher costs for the industry.
Demand Slowdown: A Grave Concern: Due to the decline in shipping demand, particularly in Asia and Europe, volumes are being hurt. Lackluster volumes are hurting the results of key industry players like United Parcel Service UPS. UPS expects average daily volumes to decrease 8.5% in 2025 from 2024 actuals. The slowdown in online sales in the United States, apart from the softness of global manufacturing activity, has been hurting the demand scenario.
For full-year 2025, on a consolidated basis, UPS expects revenues to be $89 billion, way below the Zacks Consensus Estimate of $94.6 billion at the time of the fourth-quarter 2024 earnings release. UPS is looking to lower exposure to its largest customer and has decided to cut business by 50%. Projected revenues for 2025 are below the 2024 actuals of $91.1 billion.
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 long-suffering shareholders. This underlines their financial strength and confidence in business. Among the Transportation – Air Freight and Cargo industry players, UPS’ board of directors raised its quarterly cash dividend to $1.64 per share in February 2025. For full-year 2025, UPS expects to make dividend payments of $5.5 billion and repurchase shares worth $1 billion.
Zacks Industry Rank Indicates Bearish Trends
The Zacks Air Freight and Cargo industry, housed within the broader Zacks Transportation sector, currently carries a Zacks Industry Rank #222. This rank places it in the bottom 10% of 246 Zacks industries.
The group’s Zacks Industry Rank, the average of the Zacks Rank of all member stocks, indicates dull near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform 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. 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 Lags S&P 500 and Sector
The Zacks Air Freight and Cargo industry has underperformed the Zacks S&P 500 composite as well as the broader Transportation sector over the past year.
The industry has decreased 12.4% over this period compared with the broader sector’s depreciation of 6%. In contrast, the S&P 500 has gained 18.5% in the said time frame.
One-Year Price Performance
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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 8.9X compared with the S&P 500’s 17.33X. It is also lower than the sector’s trailing 12-month EV/EBITDA of 11.07X.
Over the past five years, the industry has traded as high as 13.58X, as low as 6.64X and at the median of 9.99X.
Enterprise Value-to-EBITDA Ratio (TTM)
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2 Transportation-Air Freight and Cargo Stocks to Keep a Tab On
Both stocks presently carry a Zacks Rank #3 (Hold).
FedEx: FDX’s efforts to reward its shareholders even in these uncertain times are praiseworthy. Apart from paying dividends, FDX is active on the buyback front. FedEx's liquidity position is also solid. FDX’s efforts to cut costs are driving its bottom line.
FDX surpassed the Zacks Consensus Estimate for earnings in three of the last four quarters (missing the consensus mark in the other). The average miss was 2.4%.
Price and Consensus: FDX
Air Transport Services is being well-served by initiatives to modernize and expand its fleet. The company expects to end 2024 with 149 aircraft (129 freighters and 20 passenger planes) in service compared with 129 at 2023-end. We are also impressed by the company's efforts to reward its shareholders through buybacks.
ATSG’s earnings surpassed the Zacks Consensus Estimate for earnings in two of the last four quarters (missing the consensus mark in the other two). The average miss was 6.9%.
Price and Consensus: ATSG
5 Stocks Set to Double
Each was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2024. While not all picks can be winners, previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
Today, See These 5 Potential Home Runs >>FedEx Corporation (FDX) : Free Stock Analysis Report
United Parcel Service, Inc. (UPS) : Free Stock Analysis Report
Air Transport Services Group, Inc (ATSG) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
