It is a well-documented fact that the widely diversified transportation sector is one of the worst-affected corners of the investment world due to the coronavirus pandemic. However, players in the Zacks Transportation - Air Freight and Cargo industry are proving to be a few triumphants from this beleaguered sector
The prosperity of players belonging to this space of the transportation sector can be attributed to the uptick in demand for e-commerce — the method of buying and selling goods and services via a software platform — in the current scenario. With the pandemic largely confining people to their homes, consumers are placing orders more online nowadays. The phenomenal e-commerce growth bodes well for companies like United Parcel Service (UPS), FedEx Corporation (FDX), Air Transport Services (ATSG) and Atlas Air Worldwide Holdings (AAWW).
About the Industry
The companies housed in the Zacks Transportation - Air Freight and Cargo industry provide air delivery and freight services. Most companies in this space are involved in offering specialized transportation and logistics services.
Apart from operating a ground fleet of multiple vehicles, some of these companies maintain an air fleet. They also offer air transportation services for passengers and cargo while some others deliver services to entities that outsource air-cargo lifting requirements
3 Key Investing Trends to Watch in the Transportation - Air Freight and Cargo Industry
E-Commerce Surge: With the pandemic largely restricting people to their homes, the need for door-to-door delivery of essentials during this unprecedented crisis is rising. E-commerce, which already became part and parcel of our daily lives in today’s fast-paced world, is witnessing higher demand now amid the pandemic-induced social-distancing protocols, quarantines and lockdowns. Last month, FedEx reported better-than-expected earnings per share and revenues for the first quarter of fiscal 2021 (ended Aug 31, 2020), also on solid e-commerce demand. The company's performance in the quarter was aided by the 36% jump in Ground revenues, driven by higher residential delivery volume. With the pandemic showing little signs of subsiding, e-commerce demand is likely to continue soaring in the near term, thereby driving the companies in the space.
Holiday Season Likely to Provide Further Boost: The current holiday season should add an impetus to UPS and FedEx’s prospects. Last month, management announced that it expects to hire more than 100,000 seasonal employees to meet the anticipated expansion in package volumes during the period. Per ACI Worldwide data, e-commerce transactions across the globe are forecast to rise 27% during the vacations (October 2020-December 2020).
Cargo Carriers Receive a Stimulus: The rise in e-commerce sales in the current economic uncertainty proved to be a boon for cargo carriers. Moreover, with many passenger airlines (that usually carry freight as well as passenger luggage) currently shrinking their fleets due to lackluster air-travel demand, cargo carriers are making hay and flying a lot of packages. To meet the swell in e-commerce demand and also to cater to the solid requirement for flying cargos, such carriers are expanding their fleet. Evidently, UPS Airlines, UPS’ air freight division, is adding MD-11 and Boeing 747-8 freighter jets to its fleet.
Zacks Industry Rank Indicates Sunny Prospects
The Zacks Air Freight and Cargo industry, housed within the broader Zacks Transportation sector, currently flaunts a Zacks Industry Rank #1. This rank places it in the top 1% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates upbeat 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 positioning in the top 50% of the Zacks-ranked industries is a result of the positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gaining confidence from this group’s earnings growth potential. Notably, the industry’s earnings estimate for 2020 has moved 35.1% north since April-end.
Given the bright near-term prospects of the industry, we will present a few stocks that investors can buy to enrich their portfolios. But it’s worth taking a look at the industry’s shareholder returns and the current valuation at first.
Industry Breezes Past the S&P 500 & the Sector
The Zacks Air Freight and Cargo industry has outperformed the Zacks S&P 500 composite and also the broader Transportation Sector over the past year.
The industry has rallied 63.9% over this period compared with the S&P 500’s appreciation of 12.2%. Meanwhile, the broader sector has appreciated 4%.
One-Year Price Performance
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 13.53X compared with the S&P 500’s 14.91X. It is, however, higher than the sector’s trailing 12-month EV/EBITDA of 9.84X.
Over the past five years, the industry has traded as high as 13.99X, as low as 6.29X and at the median of 9.43X.
Enterprise Value-to-EBITDA Ratio
4 Transportation - Air Freight and Cargo Stocks to Keep Tabs on
UPS: The exponential e-commerce growth rate in the current scenario is a huge plus for this Atlanta-based company, which currently sports a Zacks Rank #1 (Strong Buy). We are also encouraged by UPS' ability to generate solid free cash flow.
Primarily, owing to the e-commerce surge, UPS shares have gained more than 77% over the past six months. Over the past 60 days, the company has seen the Zacks Consensus Estimate for 2020 move almost 4% north.
Price and Consensus: UPS
You can see the complete list of today’s Zacks #1 Rank stocks here.
FedEx: Like UPS, FedEx benefited from the buoyancy in e-commerce demand during the coronavirus-ravaged times. Revenues at the FedEx Ground segment, which handles e-commerce deliveries for many retailers, have been on the upswing for a while now. This Memphis, TN- based company currently sports a Zacks Rank of 1.
Riding on the e-commerce driven strength of its Ground unit, the stock has skyrocketed in excess of 100% over the past six months. Over the past 60 days, the company has seen the Zacks Consensus Estimate for the current year being revised 49.5% upward.
Price and Consensus: FDX
Air Transport Services Group: This Wilmington, OH-based company is a leading provider of aircraft leasing, and air cargo transportation and related services, globally. Over the past 60 days, this presently #1 Ranked company has seen the Zacks Consensus Estimate for 2020 being raised 4%. The stock has surged 42.4% over the past six months.
Air Transport Services gained traction from its association with the e-commerce giant Amazon. Notably, the upturn in e-commerce demand during these coronavirus-troubled times is a major tailwind for the company.
Price and Consensus: ATSG
Atlas Air Worldwide Holdings : The company is a provider of outsourced aircraft and aviation operating services. Over the past 60 days, this presently Zacks #1 Ranked company has seen the Zacks Consensus Estimate for 2020 being increased 2.2%. The stock has jumped 77% over the past six months.
Atlas Air is being supported by strong demand for airfreight in the coronavirus-triggered scenario. The boom in e-commerce trends amid the current scenario is a huge positive. The rise in online sales emerged as a key catalyst for the cargo carriers.
Price and Consensus: AAWW
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United Parcel Service, Inc. (UPS): Free Stock Analysis Report
FedEx Corporation (FDX): Free Stock Analysis Report
Air Transport Services Group, Inc (ATSG): Free Stock Analysis Report
Atlas Air Worldwide Holdings (AAWW): Free Stock Analysis Report
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