In this article I use AAII’s A+ Investor Stock Grades to provide insight into three air freight and logistics stocks. With increasing global needs, you might consider the air freight and logistics stocks of Air Transport Services Group (ATSG), Hub Group (HUBG) and ZTO Express (Cayman) (ZTO).
Air Freight And Logistics Stocks Recent News
The global air freight and logistics market is tied to global gross domestic product (GDP) and is expected to grow at a 6.6% compound annual growth rate (CAGR) between 2024 and 2032, particularly due to a surge in e-commerce logistics, global trade and time-sensitive products. In addition, strength in the dominant North American market is increasing transport demand for industrial goods.
With the rising prevalence of e-commerce and global trade, air freight and logistics providers will be forced to adopt automation and newer technologies such as artificial intelligence (AI), data analytics and innovated transportation to make the delivery and returns experience seamless and cost-effective for both customers and retailers.
Current geopolitical tension and conflicts have affected the air freight and logistics industry. Freight has been rerouted, suspended and attacked from areas such as the Red Sea and Suez Canal, which are major shipping routes, disrupting the global supply chain network.
Grading Air Freight And Logistics Stocks With AAII’s A+ Stock Grades
When analyzing a company, it is helpful to have an objective framework that allows you to compare companies in the same way. This is why AAII created the A+ Stock Grades, which evaluate companies across five factors that have been indicated by research and real-world investment results to identify market-beating stocks in the long run: value, growth, momentum, earnings estimate revisions (and surprises) and quality.
Using AAII’s A+ Stock Grades, the following table summarizes the attractiveness of three air freight and logistics stocks—Air Transport Services Group, Hub Group and ZTO Express—based on their fundamentals.
AAII’s A+ Stock Grade Summary for Three Air Freight and Logistics Stocks
What the A+ Stock Grades Reveal
Air Transport Services Group (ATSG), together with its subsidiaries, provides aircraft leasing and air cargo transportation and related services in the U.S. and internationally. It operates in two segments: Cargo Aircraft Management Inc. and aircraft, crew, maintenance and insurance (ACMI) services. The company offers aircraft, flight crews, aircraft hull and liability insurance, and aviation fuel services. It also offers aircraft maintenance and modification services—including airframe modification and heavy maintenance, component repairs, engineering services—and aircraft line maintenance. Air Transport Services Group provides equipment maintenance services; cargo load transfer and package sorting services; crew training services; and airline express operation, line and heavy maintenance, and ground handling services. Further, the company operates cargo and passenger transportation business; resells and brokers aircraft parts; and performs passenger-to-freighter and passenger-to-combi conversions of aircraft. As of December 31, 2023, the company’s in-service aircraft fleet consisted of 107 owned Boeing aircraft, three Airbus aircraft and 20 leased aircraft.
The company has a Value Grade of A, based on its Value Score of 88, which is deep value. Higher scores indicate a more attractive stock for value investors and, thus, a better grade. The Value Grade is the percentile rank of the average of the percentile ranks of the price-to-sales (P/S) ratio, price-earnings (P/E) ratio, price-to-book-value (P/B) ratio, price-to-free-cash-flow ratio (P/FCF), shareholder yield and the ratio of enterprise value to earnings before interest, taxes, depreciation and amortization (Ebitda).
Air Transport Services Group’s Value Score ranking is based on several traditional valuation metrics. The company has a shareholder yield of 3.3%, which ranks in the 22nd percentile among all U.S.-listed stocks. Additionally, it has a price-to-sales ratio of 0.74, which ranks in the 26th percentile, and an enterprise-value-to-Ebitda ratio of 6.7, which ranks in the 19th percentile.
Air Transport Services Group has a Momentum Grade of A, based on its Momentum Score of 83. This means that it is very strong in terms of its weighted relative strength over the last four quarters. The weighted four-quarter relative strength rank is the relative price change for each of the past four quarters, with the most recent quarterly price change given a weight of 40% and each of the three previous quarters given a weight of 20%. The scores are 90, 71, 49 and 30, sequentially from the most recent quarter. The weighted four-quarter relative price strength is 9.3%.
A higher-quality stock possesses traits associated with upside potential and reduced downside risk. Backtesting of the Quality Grade shows that stocks with higher grades, on average, outperformed stocks with lower grades over the period from 1998 through 2019.
The A+ Quality Grade is the percentile rank of the average of the percentile ranks of return on assets (ROA), return on invested capital (ROIC), gross profit to assets, buyback yield, change in total liabilities to assets, accruals to assets, Z double prime bankruptcy risk (Z) score and F-Score. The score is variable, meaning it can consider all eight measures or, should any of the eight measures not be valid, the valid remaining measures. To be assigned a Quality Score, though, stocks must have a valid (non-null) measure and corresponding ranking for at least four of the eight quality measures.
Air Transport Services Group has a Quality Grade of B, based on a score of 61, which is strong. It ranks strongly in terms of its buyback yield of 3.3%, compared to the sector median of –0.4%. The company has an accruals-to-assets ratio of –13.6%, a change in total liabilities to assets of –2.1% and a gross-income-to-assets ratio of 17.4%. The company is in line with the industry average metrics for the F-Score and Z-Score. The F-Score is a number between 0 and 9 that assesses the strength of a company’s financial position based on its profitability, leverage, liquidity and operating efficiency.
Hub Group (HUBG), a supply chain solutions provider, offers transportation and logistics management services in North America. The company’s transportation services include intermodal, truckload, less-than-truckload, flatbed, temperature-controlled, and dedicated and regional trucking, as well as final mile, railcar, small parcel and international transportation. Its logistics services comprise full outsource logistics solution, transportation management, freight consolidation, warehousing and fulfillment, final mile delivery, and parcel and international services. The company offers a fleet of approximately 2,300 tractors, 460 independent owner-operators and 4,300 trailers to its customers, as well as the management and infrastructure. The company serves a range of industries, including retail, consumer products and durable goods.
Hub Group has a Quality Grade of A, based on a score of 81, which is very strong. The company ranks strongly in terms of return on assets, buyback yield and Z-Score. Hub Group has a return on assets of 3.8%, a buyback yield of 3.1% and Z-Score of 7.73. The sector median buyback yield and Z-Score are –0.4% and 5.91, respectively. Hub Group ranks poorly in terms of return on invested capital.
Earnings estimate revisions indicate how analysts view a firm’s short-term prospects. Hub Group has an Earnings Estimate Revisions Grade of C, based on a score of 50, which is neutral. The grade is based on the statistical significance of its latest two quarterly earnings surprises and the percentage change in its consensus estimate for the current fiscal year over the past month and past three months.
Hub Group reported a positive earnings surprise for the third quarter of 2024, beating the consensus estimate by 9.0%. Over the last month, the consensus earnings estimate for the fourth quarter of 2024 has decreased from $0.503 to $0.479 per share due to one upward revision and nine downward revisions. Over the last month, the consensus earnings estimate for full-year 2024 has risen from $1.895 to $1.908 per share, based on eight upward and four downward revisions.
The company has a Value Grade of B, based on its Value Score of 65, which is good value. This is derived from a low price-to-sales ratio of 0.76 and a high shareholder yield of 4.1%, ranking in the 26th and 17th percentiles, respectively. Hub Group is in line with its industry peers with a price-earnings ratio of 27.9.
ZTO Express (Cayman) Inc.(ZTO) provides express delivery and other value-added logistics services in China. It offers freight forwarding services, as well as delivery services for e-commerce and traditional merchants, and other express service users. The company was founded in 2002 and is headquartered in Shanghai, China.
ZTO Express has a Quality Grade of B, based on a score of 79, which is strong. The company ranks strongly in terms of its return on assets, return on invested capital and F-Score. ZTO Express has a return on assets of 9.9%, a return on invested capital of 27.5% and an F-Score of 6.
ZTO Express has a Momentum Grade of D, based on its Momentum Score of 32. This means that it is weak in terms of its weighted relative strength over the last four quarters. Its scores are 51, 40, 81 and 8, sequentially from the most recent quarter. The weighted four-quarter relative price strength is –7.5%.
ZTO Express reported a positive earnings surprise for the second quarter of 2024, beating the consensus estimate by 5.6%. Over the past three months, the consensus earnings estimate for the third quarter of 2024 has decreased from $0.433 to 0.393 per share. Over the last month, the consensus earnings estimate for full-year 2024 has decreased from $1.708 to $1.701 per share, based on two downward revisions.
The company has a Value Grade of A, based on its score of 95, which is deep value. This is derived from a price-earnings ratio of 14.5, a price-to-free-cash-flow ratio of 4.1 and a shareholder yield of 3.9%, which rank in the 34th, 8th and 19th percentiles, respectively.
ZTO Express has a Growth Grade of A, which is very strong. Its five-year annualized sales growth rate is strong at 16.2%.
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The stocks meeting the criteria of the approach do not represent a “recommended” or “buy” list. It is important to perform due diligence.
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