Stock Analysis & Ideas

As Freight Rates Decline, These 3 Shipping Stocks Offer a Promising Voyage

Story Highlights

After record highs and teething demand, freight rates are mellowing. We highlight three names that may successfully navigate these trying waters.

The year 2022 has been a story of fast-changing fortunes. Only a few months ago, freight rates were at record highs and as much as 50% higher than they were in 2021. However, in July 2022, the dynamics were shifting rapidly.

Amid this dynamic, let’s take a look at three major shipping names: Zim Integrated Shipping (ZIM), Navios Maritime Partners (NMM), and Matson (MATX), and how they have fared so far and what their voyages may look like in the coming months.

ZIM Integrated Shipping (ZIM)

ZIM shares started trading in January 2021. This container shipping and services provider has seen its share price decline by 21.5% in 2022, but investors are still sitting on nearly 300% gains since its listing.

Revenue increased from around $4 billion in 2020 to $10.73 billion in 2021, and it is further expected to rise to $13.8 billion in 2022. Concurrently, the bottom line is anticipated to expand to $44.50 per share in 2022 from $39 per share in 2021.

While the stock has taken a beating recently amid rising concerns over shipping rates, the Street is already seeing a 46.87% potential upside in ZIM. The consensus rating for ZIM is a Hold, with an average price target of $65.43.

J.P Morgan’s Sam Bland has reiterated a Hold rating on ZIM but increased the price target to $56.30 from $53.30.

Navios Maritime Partners (NMM)

This dry cargo and tanker vessel operator has seen its shares slide nearly 19% in 2022 but is still up nearly 100% from January 2021 levels. The company has been steadily expanding its fleet, having splurged $1 billion on 18 vessels earlier.

Last month, it agreed to shell out $241.2 million for two LNG containerships. The new vessels are expected to join its fleet in 2024, while Navios also has the option to acquire two more similar vessels in the next two months (to be delivered in 2025).

Just like ZIM, Navios too has increased its revenue from $226.8 million in 2020 to $713.2 million in 2021. The figure is expected to increase to $1.22 billion in 2022. The company’s earnings have also expanded from $0.89 per share in 2020 to $15.75 per share in 2021 and are further expected to rise to $18.3 in 2022.

Notably, the Street is eyeing mouth-watering gains of 157.85% in Navios at an average price target of $55. Additionally, TipRanks data indicates hedge funds increased holdings in the stock by 594,700 shares in the last quarter. Thomas Claugus’ GMT Capital Corp is a new entrant in the stock with a position worth nearly $20.9 million.

Matson (MATX)

We round off our list with ocean transportation and services provider Matson, which, despite being 16% down over the past month, is still up nearly 17% over the past year.

Matson, too, has been a beneficiary of the tailwinds in shipping and has seen its top line expand from $2.38 billion in 2020 to $3.93 billion in 2021. Revenue is further expected to inch up to $4.47 billion in 2022. Additionally, earnings are expected to expand at a faster clip to $28.8 per share in 2022 from $4.4 per share in 2020.

Stifel Nicolaus’ Benjamin Nolan has reiterated a Buy rating on the stock but did not assign it a price target. The analyst expects the company to benefit from the Ocean Shipping Reform Act.

Furthermore, Matson hiked the dividend twice in the past two years and currently has a dividend yield of 1.65%, which remains a major positive for potential investors who are faced with the double whammy of falling equities and rising inflation at present.

In comparison, Navios has lowered its dividend in the past two years and currently offers a dividend yield of 0.94%. ZIM, on the other hand, has dished out a total of $19.85 per share in dividends so far this year and currently offers a dividend yield of a whopping 50.17%.

Closing Note

The U.S. saw its trade deficit deflate in May as consumers, faced with an aggressive Fed, cut back on purchases. Moreover, businesses are running with well-stocked inventories, which further contributes to lowering the demand for new imports.

Almost two years of supply chain challenges have pushed up freight contracts. As demand softens, freight rates are cooling off as well. According to the WSJ, short-term shipping rates slid below long-term rates in June. This means companies are renegotiating agreements or looking at the spot market to tap into lower rates.

Although broader market gyrations may continue, these three aforementioned stocks have been delivering consistently. Moreover, along with the expected price gains, dividend payments offer would-be investors an added capital cushion as well.

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