The shipping market is expected to expand due to increased demand for fast delivery, e-commerce expansion, and technological advancements. Therefore, it could be wise for investors to buy fundamentally sound shipping stocks FedEx Corporation (FDX) and Danaos Corporation (DAC) now. However, I think it would be wise to wait for a better entry point in United Parcel Service, Inc. (UPS).
The shipping industry has the potential for long-term expansion as a result of global trade, free trade agreements, port construction, and government spending. Emerging markets and consumer demand for goods drive demand, while technical developments enhance efficiency and competitiveness.
The maritime digitization market is projected to grow at a CAGR of 10.8% until 2029 to $325.52 billion. The adoption of technologies such as AI, blockchain, IoT, and automation in the shipping industry provides opportunities for growth by improving efficiency, streamlining processes, and lowering costs by optimizing fuel consumption and manual labor.
According to TechSci report, the global cargo shipping market is expected to expand at a CAGR of 3% until 2028. The cargo shipping market is an important component of the worldwide economy, and its growth is driven by the increase in international trade, demand for raw materials and commodities, e-commerce, and the global middle class.
Let’s delve into the fundamentals of the featured stocks.
Stock to Buy:
FedEx Corporation (FDX)
FDX is a global company providing transportation, e-commerce, and business services. It operates through segments like FedEx Express; FedEx Ground and FedEx Freight; offering express transportation, small-package delivery, freight services, and business support. Additionally, the company provides supply chain management solutions, air and ocean cargo transportation, customs brokerage, and trade management tools.
FDX’s forward non-GAAP PEG multiple of 1.08 is 37.1% lower than the industry average of 1.71. Its forward non-GAAP P/E multiple of 15.06% is 18.6% lower than the industry average of 18.51.
FDX’s trailing-12-month CAPEX / Sales of 6.98% is 134.6% higher than the industry average of 2.97%. Its trailing-12-month asset turnover ratio of 1.02x is 28% higher than the industry average of 0.80x.
For the first quarter ended August 31, 2023, FDX’s revenue amounted to $21.68 billion. The company’s adjusted operating income and net income increased 29.4% and 28.1% year-over-year to $1.59 billion and $1.16 billion, respectively. Moreover, its adjusted EPS grew 32.3% year-over-year to $4.55.
The consensus revenue estimate of $89.38 billion for the fiscal year ending May 2024. Its EPS is expected to grow 21.5% year-over-year to $18.18 for the same year. It surpassed EPS estimates in all four trailing quarters. FDX’s shares have gained 54.8% over the past year to close the last trading session at $273.83.
FDX’s POWR Ratings reflect this optimistic outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
FDX also has an A grade for Sentiment and a B for Quality. It is ranked first among 15 stocks in the Air Freight & Shipping Services industry. Click here for the additional POWR Ratings for Momentum, Growth, Stability and Value for FDX.
Danaos Corporation (DAC)
Based in Piraeus, Greece, DAC and its subsidiaries own and operate containerships in Australia, Asia, Europe, and the United States. The company offers seaborne transportation services, such as chartering its vessels to liner companies.
DAC’s forward EV/Sales multiple of 1.46 is 17.2% lower than the industry average of 1.76. Its forward EV/EBIT multiple of 2.37% is 85.3% lower than the industry average of 16.13.
DAC’s trailing-12-month net income margin of 59.29% is 877.4% higher than the industry average of 6.07%. Its trailing-12-month EBITDA margin of 71.05% is 420.3% higher than the industry average of 13.66%.
For the fiscal third quarter ended September 30, 2023, DAC’s operating revenues came in at $239.22 million. The company’s adjusted net income came in at $142.96 million. Its adjusted EBITDA stood at $178.03 million. Additionally, its adjusted earnings per share came in at $7.26.
As of September 30, 2023, DAC’s total current assets stood at $498.20 million compared to $372.52 million as of December 31, 2022. Also, its total current liabilities stood at $173.08 million compared to $228.41 million for the same period.
Analysts expect DAC’s revenue to grow marginally year-over-year to $983.64 million for the year ending December 2024. Its EPS is expected to come in at $27.88 for the same period. The stock has gained 24.7% over past nine months to close the last trading session at $67.72.
DAC has an overall B rating, equating to a Buy in our POWR Ratings system. It has an A grade for Quality and a B for Value and Momentum. It is ranked #5 out of 43 stocks in the B-rated Shipping industry.
Beyond what is stated above, we’ve also rated DAC for Growth, Stability and Sentiment. Get all DAC ratings here.
Stock to Hold:
United Parcel Service, Inc. (UPS)
UPS offers letter and package delivery, transportation, logistics, and related services. It operates through two segments: U.S. Domestic Package and International Package.
UPS’ forward EV/Sales multiple of 1.66 is 5.8% lower than the industry average of 1.76 while its forward non-GAAP PEG multiple of 7.94% is 364.5% higher than the industry average of 1.71.
UPS’ trailing-12-month asset turnover ratio of 1.33x is 66.8% higher than the 0.80x industry average, while its trailing-12-month levered FCF margin of 4.36% is 28.1% lower than the industry average of 6.07%.
UPS’ revenue declined 12.8% year-over-year to $21.06 billion for the third quarter that ended September 30, 2023. Its operating profit came in at $1.62 billion. Moreover, its net income came in at $1.35 million and EPS came in at $1.57.
However, as of September 30, 2023, the company’s total current liabilities stood at $15.82 billion, compared to $18.14 billion as of December 31, 2022. Also, its total liabilities s and Shareowners’ Equity amounted to $70.28 billion, compared to $71.12 billion for the same period.
Street expects UPS’ revenue to decline 8.7% year-over-year to $91.61 billion for the year ending December 2023. Its EPS is expected to decline 31.8% year-over-year to $8.82 for the same period. Shares of UPS has gained 13.8% over the past month to close the last trading session at $157.25. However, the stock has lost 9.1% over past six months.
UPS’ mixed outlook is reflected in its POWR Ratings. The stock has an overall C rating, which translates to a Neutral in our proprietary system.
It has a C grade for Value, Stability, Sentiment and Momentum. Within the Air Freight & Shipping Services industry, it is ranked #6 out of 15 stocks. To see additional UPS’ ratings for Growth and Quality, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
FDX shares were trading at $277.94 per share on Thursday morning, up $4.11 (+1.50%). Year-to-date, FDX has gained 63.85%, versus a 24.90% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
Analyzing the December Potential of 3 Shipping Stocks StockNews.com
