Shipping container rates have risen substantially over the past 18 months and are likely to increase further as the holiday season approaches. Thus, we think popular shipping stocks ZIM Integrated Shipping Services (ZIM), Matson (MATX), Costamare (CMRE), and Danaos Corporation (DAC), which have outperformed the broader market so far this year, could rally further. So, let’s examine these names.
Shipping container rates have been surging since the onset of the COVID-19 pandemic last year, exacerbated by supply bottlenecks and increased waiting times. While retail and manufacturing companies have witnessed increased production and supply costs amid surging shipping rates over the past 18 months, shipping and logistics companies have reported a sharp uptick in their profits.
Since the impending holiday season is spurring consumer spending, shipping rates are expected to increase further in the coming months. Given the steady economic recovery, rising household income, and falling unemployment rate, the National Retail Federation expects holiday spending in the United States to increase between 8.5% -10.5% year-over-year in 2021.
Renowned shipping companies ZIM Integrated Shipping Services Ltd. (ZIM), Matson, Inc. (MATX), Costamare Inc. (CMRE), and Danaos Corporation (Dacian) reported increased profits in the last quarter, driven by strong demand and higher freight rates. Analysts expect their earnings to rise by more than 90% in the current quarter. Thus, these stocks could be ideal bets now.
ZIM Integrated Shipping Services Ltd. (ZIM)
Headquartered in Israel, ZIM is a cargo transportation and asset-light container liner shipping company. It provides container seaborne shipping and logistics services internationally. ZIM made its public debut on January 28, 2021, through an initial public offering of 14.50 million shares. The stock has gained 378.3% in price since its IPO to close yesterday’s trading session at $55.
ZIM’s revenues increased 210% year-over-year to $3.14 billion in its fiscal third quarter, ended September 30, 2021. This can be attributed to a 17% rise in average freight rates and a 16% rise in total twenty-foot equivalent units (TEU) transported. Its net income and EPS increased 913% and 794%, respectively, from the prior-year quarter to a record $1.46 billion and $12.16.
Last month, the company purchased five secondhand 4,250 TEU vessels and two 1,100 TEU vessels for $320 million. This should allow it to expand its operations amid rising consumer demand, thereby boosting profit margins.
On October 18, ZIM launched a digital freight forwarding platform, Ship4wd, to provide customers with a self-service, end-to-end shipping solution. This platform is expected to manage the company’s entire logistic chain end to end, thereby allowing it to emerge as a significant player in the multi-billion-dollar freight forwarding industry.
A $3.02 billion consensus revenue estimate for its fiscal fourth quarter (ending December 2021) indicates a 121.8% improvement year-over-year. The company’s EPS is expected to rise 206.9% from the same period last year to $10.68. Furthermore, ZIM has an impressive earnings surprise history; it beat the Street’s EPS estimates in three of the trailing four quarters.
WINTER POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
ZIM has a grade of B for Growth, Momentum, Quality, and Value. Among 46 stocks in the Shipping industry, ZIM is ranked #6. View additional ZIM ratings for Sentiment and Stability here.
Matson, Inc. (MATX)
MATX is an ocean transportation and logistics services company that is based in Honolulu, Hawaii, and operates through two segments—Ocean Transportation, and Logistics. MATX’s services are mainly used by the U.S. military, automobile manufacturers, freight forwarders, and retailers. The company has an ISS QualityScore of 1, indicating relatively low corporate governance risk.
For its fiscal third quarter, ended September 30, MATX’s ocean transportation revenue increased 73.3% year-over-year to $863.50 million, owing to an 11.5% rise in Hawaii container volume and a 21.7% rise in Chain container volume (on an FEU basis). Its operating income came in at $361.90 million, up 318.4% from the same period last year. And its EPS improved 300.6% from the same period last year to $6.53.
MATX has been taking steps to reduce its carbon footprint, with the long-term goal of achieving net-zero fleet greenhouse gas (GHG) emissions by 2050. The company has reduced its GHG emissions by 23% since 2016, as stated in its Sustainability report 2020 Supplement, published on November 1, 2021.
The Street expects MATX’s revenue and EPS to increase 29.4% and 174%, respectively, year-over-year to $905.61 million and $5.37in its fiscal fourth quarter (ending December 2021). Also, MATX surpassed the consensus EPS estimates in each of the trailing four quarters,
Shares of MATX have gained 56.5% in price year-to-date to close yesterday’s trading session at $89.16.
It is no surprise that MATX has an overall A rating, which translates to a Strong Buy in the POWR Ratings system. It has a B grade for Growth, Value, Quality, and Momentum. Also, the stock is ranked #2 in the Shipping industry.
In total, we rate MATX on eight distinct levels. Click here to view MATX ratings for Stability and Sentiment.
Costamare Inc. (CMRE)
CMRE is an Athens, Greece-based company that owns and charters containerships to liner companies that provide global marine transportation services. The company’s fleet comprised 81 containerships and 16 dry bulk vessels as of June 14, 2021.
During the steady economic recovery over the past year, CMRE has expanded its fleet to capitalize on rising cargo transportation demand. The company acquired 16 dry bulk vessels (with capacity ranging from 33,000 – 85,000 DWT) in June 2021. The delivery of the vessels is expected to be completed by January 2022. Regarding this, CMRE CFO Gregory Zikos said, “We are pleased to announce the acquisition of dry bulk vessels. We have decided to invest in a liquid sector with strong fundamentals that provide enhanced return opportunities for our shareholders.”
CMRE’s voyage revenues increased 100.4% year-over-year to $216.23 million. Adjusted net income rose 204.9% from its year-ago value to $81.54 million, while its adjusted EPS improved 200% from the same period last year to $0.66.
Analysts expect CMRE’s revenues to stand at $279.67 million in its fiscal fourth-quarter, ending December 2021, indicating a 134.7% rise from the prior-year quarter. The $1 consensus EPS estimate for the current quarter reflects a 270.4% increase year-over-year. Also, CMRE has an impressive earnings surprise history; it surpassed the Street’s EPS estimates in three of the trailing four quarters.
CMRE has gained 47.2% in price year-to-date and 16.8% over the past six months.
CMRE has an overall B rating, which equates to Buy in our proprietary rating system. The stock has a B grade for Growth, Momentum, and Sentiment. In addition, it is ranked #12 in the Shipping industry.
Beyond what we have stated above, you can view CMRE ratings for Quality, Value, and Stability here.
Danaos Corporation (Dacian)
DAC is one of the largest independent owners of containerships in the world. Headquartered in Greece, the company owns 65 containerships with a total capacity of 403,793 TEUs. It charters its containerships and vessels to some of the world’s largest liner companies at a fixed rate.
In August, DAC entered charter agreements for 10 of its vessels, achieving charter coverage for 100% of its operating days in 2021. Furthermore, the strong market environment has allowed DAC to obtain charter coverage for 89% of its operating days in 2022 and 60% of operating days in 2023. The high demand and favorable contracts are expected to be reflected in DAC’s profit margins in the coming quarters.
In July, DAC acquired six new container vessels with an average age of 6.8 years for $260 million. The acquisitions are expected to boost the company’s contracted revenue and EBITDA by $71 million and $39 million, respectively.
DAC’s operating revenues rose 64.8% from the same period last year to $195.90 million in its fiscal third quarter, ended September 30, 2021. Its adjusted net income came in at $109.50 million, up 131.5% year-over-year. And its adjusted EPS increased 178.5% from the year-ago value to $5.32.
The $190.92 million consensus revenue estimate for its fiscal fourth-quarter, ending December 2021, indicates a 59.6% improvement from its year-ago value. The Street expects DAC’s EPS to rise 96.9% year-over-year to $4.51 in the current quarter. In addition, DAC surpassed the consensus EPS estimates in three of the trailing four quarters.
Shares of DAC have gained 233.5% in price year-to-date, outperforming the benchmark S&P 500 index’s 24.6% returns.
DAC has an overall rating of B, which translates to Buy in our POWR Ratings system. In addition, it has a B rating for growth and Momentum. DAC is ranked #15 in the Shipping industry.
We have also rated DAC for Sentiment, Quality, Value, and Stability. View all DAC ratings here.
ZIM shares fell $0.50 (-0.91%) in premarket trading Wednesday. Year-to-date, ZIM has gained 378.26%, versus a 26.45% rise in the benchmark S&P 500 index during the same period.