Israeli cargo shipping company ZIM Integrated Shipping (NYSE:ZIM) was up in pre-market trading as the troubles in the Red Sea resulted in an increase in freight rates. Shipping vessels passing through the Red Sea for the past several weeks have faced attacks from Yemen’s Houthi Rebels. On Monday, Houthi militants struck the U.S.-owned commercial vessel, the Gibraltar Eagle, giving rise to fears that this conflict could deepen further.
This has resulted in ships changing their routes and passing through the Cape of Good Hope, which is a longer detour. This has pushed up ocean freight rates up to $10,000 per 40-foot container. The global shipping industry has been in a slump as it has been dragged down by high inventories and a drop in consumer spending.
According to a CNBC report, citing data from the John McCown Container Report, container shipping companies’ net income plunged 95.6% year-over-year to $2.6 billion in the third quarter of last year. Considering the recent price hikes, shipping container companies are expected to recover in terms of profitability in the first quarter of this year.
Is ZIM a Good Stock to Buy?
Top-rated Jeffries analyst Omar Nokta remains sidelined about ZIM with a Hold rating and a price target of $14, implying an upside potential of 4% at current levels. However, the analyst has “raised significantly” ZIM’s 2024 EBITDA forecast by 50% to $0.9 billion. The analyst sees higher earnings due to higher utilization/capacity along with a better supply and demand balance as a result of vessels avoiding the Red Sea route.
Overall, ZIM does not seem to be a good stock to buy, as Wall Street analysts are bearish with a Moderate Sell consensus rating based on two Holds and two Sells. Over the past year, ZIM stock has gone up by more than 3%, and the average ZIM price target of $9.70 implies a downside potential of 27.9% at current levels.
