For those not in the loop, stocks in the Zacks Transportation – Shipping industry are responsible for ferrying a high proportion of goods involved in world trade. Consequently, the demand-weakness due to coronavirus-led disruptions has been a huge setback to the industry players so far. However, the easing of pandemic-induced restrictions and the resultant uptick in economic activities left a bullish impact on the shipping stocks as trading volumes gain traction.
Players like Star Bulk Carriers (SBLK Quick QuoteSBLK ) , Costamare (CMRE Quick QuoteCMRE ) , Genco Shipping & Trading Limited (GNK Quick QuoteGNK ) and Eagle Bulk Shipping (EGLE Quick QuoteEGLE ) are expected to benefit from the gradual uptick in demand for transportation following the resumption of economic activities.
About the Industry
The companies housed in the Zacks Transportation – Shipping industry offer liquefied natural gas and crude oil marine transportation services under long-term, fixed-rate contracts with major energy and utility companies. Most participants focus on the seaborne transportation of crude oil and other oil products, globally. The industry also includes players that own, operate and manage liquefied natural gas carriers. Some participants are owners and operators of containerships for charter. The change in the e-commerce landscape amid the coronavirus-scarred scenario implies that shippers are relying more on third-party logistics providers. The well-being of the companies in this industrial cohort is directly proportional to the health of the economy. Strength in manufactured and retail goods, and improving global economic conditions bode well for the industry participants.
3 Key Investing Trends to Watch in the Transportation – Shipping Industry
Accelerated Economic Recovery Augurs Well: The ramp-up in economic activities and trade volumes is a huge boon for the shipping stocks. Within the shipping industry, the containership market is particularly booming. The same is being aided by increased manufacturing activities in Asia apart from inventory restocking and greater demand for goods rather than services in Europe and the United States. The already high container rates were further pushed up by the Suez Canal crisis earlier this year. Additionally, the northward movement of the Baltic Dry Index — a proxy for global dry freight rates across 23 routes — buoys optimism for the dry bulk market. With the global economy trying hard to get back into shape, we expect trading volumes to remain elevated, which should support growth of this key industry.
Shareholder-Friendly Measures Pick Up the Pace: With the resumption of economic activities, many companies including those in the shipping domain are reactivating their shareholder-oriented moves, thereby underlining their financial strength and confidence in the business. Evidently, in July 2021, Costamare announced a 15% hike in its quarterly dividend. In May, Genco Shipping declared a 150% raise in its quarterly dividend payout.
Rising Fuel Costs Limiting Bottom-Line Growth: It is a well-known fact that expenses associated with oil are considered one of the major input costs for any transportation company and shipping stocks are no exception. Therefore, the recent upsurge in fuel costs does not augur well for the shipping companies, especially as far as bottom-line growth is concerned. Oil prices per gallon increased 24.2% in the three months covering the second quarter (April-June). This reflects a rise in ship fuel costs. The increase in bunker-fuel costs is a bane for oil supertankers.
Zacks Industry Rank Indicates Bullish Prospects
The Zacks Transportation – Shipping industry is a 42-stock group within the broader Zacks Transportation sector. The industry currently carries a Zacks Industry Rank #103, which places it in the top 41% of 250 plus Zacks industries.
The group’s Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates bright 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 a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. Since June 2021, the industry’s earnings estimate for 2021 has gone 4.8% up.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and its valuation picture.
Industry’s Stock Market Performance
The Zacks Transportation – Shipping industry has outperformed both the broader Transportation Sector and the Zacks S&P 500 composite over the past year.
During this period, the industry has surged 43.3% compared with the broader sector’s increase of 21.7%. Also, the S&P 500 has appreciated 34.3% in the same time frame.
One-Year Price Performance
The Valuation Picture
On the basis of the trailing 12-month enterprise value-to-EBITDA (EV/EBITDA), a commonly used multiple for valuing shipping stocks, the industry is currently trading at 8.70X compared with the S&P 500’s 15.92X. It is also below the sector’s trailing-12-month EV/EBITDA of 18.49X.
Over the past five years, the industry has traded as high as 13.86X, as low as 4.46X and at the median of 9.68X.
Trailing 12-Month Enterprise Value-to EBITDA (EV/EBITDA) Ratio
4 Transportation – Shipping Stocks to Keep Tabs on
Costamare: We are impressed by this Monaco-based company’s strong cash flow generating ability. Its capacity to reward its shareholders through dividend payments even in these turbulent times is a positive too. The company’s young fleet size is praiseworthy as well.
Shares of the company, that owns and charters containerships to liner companies, have gained more than 47% year to date. The stock, currently sporting a Zacks Rank #1 (Strong Buy), has also seen the Zacks Consensus Estimate for current-year earnings move 7.6% north over the past 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: CMRE
Genco Shipping & Trading Limited: This New York-based company, currently sports a Zacks Rank of 1. Optimism surrounding the dry bulk market is a huge boon for Genco Shipping. The upward movement of the Baltic Dry Index reflects the positivity surrounding the drybulk market. Increased fleet utilization with the gradual reopening of the economy and an upturn in world trade is also aiding the company.
On the back of the aforementioned tailwinds, shares of this drybulk ship-owning company, which is focused on the seaborne transportation of commodities across the globe, have skyrocketed in excess of 100% so far this year. The stock has also seen the Zacks Consensus Estimate for current-year earnings move 44.1% north over the past 60 days.
Price and Consensus: GNK
Eagle Bulk Shipping: Headquartered in Stamford, CT, the company is currently Zacks #1 Ranked. Like Genco Shipping, Eagle Bulk Shipping is also benefiting from the optimism surrounding the drybulk market as economic activities gradually gather steam. Buoyed by this favorable scenario, shares of this largest U.S. based owner of Handymax dry bulk vessels, have had a dream run on the bourses so far this year, skyrocketing above 100%. The stock has also seen the Zacks Consensus Estimate for current-year earnings move 21.8% north over the past 60 days.
Price and Consensus: EGLE
Star Bulk Carriers: Domiciled in Athens, Greece, the company currently carries a Zacks Rank #2 (Buy). It’s voyage revenues are benefiting from the gradual reopening of the global economy and the resultant improvement in demand across all key dry bulk commodities. Continued fleet expansion initiatives are a bonus for this provider of seaborne transportation solutions in the dry bulk sector. Propelled by this favorable scenario, shares of the company have had a dream run on the bourses year to date, soaring more than 100%. The stock has also seen the Zacks Consensus Estimate for current-year earnings move 27.2% north over the past 60 days.
Price and Consensus: SBLK