Despite A 55% Rally Expeditors International Stock Has More Upside
Expeditors International of Washington stock (NASDAQ: EXPD) is up 11% since the start of the year and it has gained around 55% from its March lows. Expeditors International of Washington, an American worldwide logistics and freight forwarding company, could offer an upside in the near term, as the company’s revenues in the last two quarters have grown by 11%. The ongoing Covid-19 crisis has resulted in increased use of charter and airfreight services, boding well for Expeditors International of Washington’s business. This is likely to bolster the revenue growth rate of the company – leading to stock price growth.
Despite a 55% rise since the March 23 lows of this year, at the current price near $87 per share, we believe EXPD stock has more room for growth. EXPD stock has rallied from $56 to $87 off the recent bottom compared to the S&P which moved 48% over the same time period. Higher demand for airfreight has helped the stock in beating overall markets. Moreover, the stock is up 34% from levels seen in early 2018, over two years ago. EXPD stock fully recovered to the level it was at before the drop in February due to the coronavirus outbreak becoming a pandemic, and it is now 13% above the pre-Covid highs. Despite the healthy rise since the March 23 lows, we feel that the company’s stock still has potential as it has benefited from the lockdowns and its valuation implies it has further to go. Our dashboard ‘Buy Or Sell Expeditors International of Washington Stock provides the key numbers behind our thinking, and we explain more below.
Some of the stock price rise over the last 2 years is justified by the roughly 18% growth seen in Expeditors International of Washington revenues from $6.9 billion in 2017 to $8.2 billion in 2019. This combined with a 2% growth in the company’s net income margin, helped its earnings grow by over 21% over the same time period, providing a boost to the company’s stock price. Overall, earnings on a per-share basis grew by 26% as shares outstanding decreased by 4.5% due to repurchases.
Finally, Expeditors International of Washington’s P/E ratio decreased slightly from 23.7x in 2017 to 22.6x in 2019. While the company’s P/E has now increased to 25.2x trailing earnings, it could see further expansion given the benefit to its business in the current pandemic, and higher revenues and earnings growth in 2020 and 2021.
How Is Coronavirus Impacting EXPD Stock?
The global spread of coronavirus has affected passenger flights across the world, resulting in an increase in use of charter services. This has benefited Expeditors International of Washington’s airfreight services business. The company reported a 19% y-o-y growth in total revenues in Q3, led by solid 53% gains seen in the Airfreight Services segment, which is the largest segment accounting for 44% of the company’s total revenues. It’s not that the Q3 alone was great, the segment revenues are up 49% for the nine month period ending September 2020. Furthermore, the company managed to control its costs and reported a slight growth in margins resulting in earnings growth of 22% to $1.12 on a per share basis.
While Q3 was good for the company, we expect overall demand to remain higher in 2020 due to uncertainty resulting from the outbreak of coronavirus which leads us to believe that the stock is currently undervalued. In fact, revenues are estimated to grow 12% to $9.2 billion, while earnings are estimated to be $3.81 on a per share basis for the full year 2020, slightly higher than the $3.39 figure reported in 2019.
Looking at the broader economy, the actual recovery and its timing hinge on the containment of the coronavirus spread. Our dashboard Trends In U.S. Covid-19 Cases provides an overview of how the pandemic has been spreading in the U.S. and contrasts with trends in Brazil and Russia. Following the Fed stimulus — which set a floor on fear — the market has been willing to “look through” the current weak period and take a longer-term view. With investors focusing their attention on 2021 results, the valuations become important in finding value. Though market sentiment can be fickle, and evidence of an uptick in new cases could spook investors once again. At current levels of $87, EXPD stock is trading at 22x its 2021 expected EPS of $3.88, compared to the levels of 24x seen in 2017, making the stock attractive.
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