The ongoing geopolitical tensions and unrest in the Red Sea region have led to major shipping diversions. That means route times are long, demand is high, capacity is tight - and shipping stocks are in focus for investors, as freight rates undergo wild fluctuations.
While higher rates are a pain point for some industry players, analysts at Jefferies just tapped small-cap shipping stock Zim Integrated Shipping Services (ZIM) as one name that looks well-positioned to benefit. The company's "high spot, high cost and high leverage platform was a major concern in a period of low freight rates, but it now provides substantial upside given the rise in spot rates," wrote analyst Omar Nokta in a note to clients last month.
After ZIM stock's impressive 87% rally from its November lows, here's how much higher Jefferies thinks the stock can rise - and how that stacks up to what the rest of Wall Street is expecting from the shipper.
About ZIM Stock
Zim Integrated Shipping Services (ZIM) is a global container liner shipping company headquartered in Haifa, Israel, that has provided services to over 200 ports worldwide since being founded in 1945. Today, the company has operations across 90 countries and serves approximately 34,000 customers. ZIM has grown into one of the leading players in the shipping industry, with a market cap of $1.43 billion.
ZIM stock is up more than 21% on a YTD basis, but the shares are still down by nearly 50% over the last 52 weeks.
The stock fell to multi-year lows late last November, exacerbated by a poorly received Q3 earnings report that month. In its November earnings report, ZIM posted a loss of $2.3 billion, or $1.97 per share, while revenue tumbled 61% to $1.27 billion. The results fell short of analysts' expectations, and ZIM also trimmed its full-year EBITDA guidance.
Notably, the company's net debt position was $1.62 billion at the end of the quarter, compared to net cash of $279 million at the end of fiscal 2023.
And perhaps more troubling for investors, Zim didn't provide an update on its dividend payment amid the continuing losses. The most recent quarterly dividend of $6.40 per share was paid to shareholders in April 2023.
Inside ZIM's Fleet and Strategy
In an industry where aging fleets are a serious fundamental concern, ZIM is advancing sustainability efforts within its industry by adding new LNG-powered vessels to its fleet. In late February, the company held naming ceremonies for three LNG ships being built in Korea and China. The addition of these vessels represents a major step in ZIM's wide-scale fleet renewal focused on environmental performance.
Beyond fleet enhancements, the company announced in January an expanded ZMP offering that directly connects Vietnam to the East Mediterranean. As Vietnam's economy rapidly grows, this service innovation positions ZIM to capitalize on rising trade volumes.
Later in January, ZIM launched the premium ZPX trans-Pacific service linking Asia with key ports in Canada and the Pacific Northwest. By renewing its fleet and launching differentiated services, ZIM aims to chart a sustainable course in a rapidly evolving industry.
What Do Analysts Expect for ZIM Stock?
For its upcoming Q1 2024 earnings report, scheduled for March 13, ZIM is expected to post a loss per share of $1.33, on average. Revenue for the quarter is projected at $1.22 billion.
For the full fiscal year, revenue is expected to rise 9.53% in 2024 to reach $5.67 billion, valuing ZIM at 0.25x forward sales.
ZIM was upgraded to a "Buy" rating by Jefferies last month, with the analyst setting a $20 price target. This call was based on the view that ZIM's "cash burn is shifting to significant cash generation" going forward.
Wall Street remains cautious on the whole, with the consensus calling ZIM a “Hold” - up from “Moderate Sell” a month ago. Based on recommendations from 5 analysts, 1 analyst says ZIM is a “Strong Buy,” 2 suggest a “Hold,” 1 recommends “Moderate Sell,” and 1 votes for “Strong Sell.”
The mean analyst price target for ZIM stock is $11.32, which is a discount of more than 5% to Friday's closing price. However, the new Street-high price target from Jefferies represents a premium of 66.5% from current levels.
