Global freight demand is rising, leading to steady growth in the shipping industry. Moreover, expanding trade networks, increasing maritime trade volumes, additional free-trade agreements, the growth of e-commerce, and government initiatives and spending are boosting the growth prospects of the shipping industry.
Before diving deeper into their fundamentals, let’s discuss what’s happening in the shipping industry.
During the pandemic, there was a shortage of shipping containers. Due to a surge in at-home deliveries, freight rates skyrocketed. This year, the global shipping industry is facing a freight recession, and shipping companies are adapting by imposing surcharges to offset decreased consumer spending and high inventories.
The shipping industry plays a crucial role worldwide, fuelled by globalization, e-commerce growth, and ongoing supply chain needs. Expanded trade agreements drive the demand for shipping services in global trade networks.
The digital freight forwarding sector’s expansion and automation are opening lucrative opportunities. The global digital freight forwarding market is anticipated to grow at a CAGR of 23.1% reaching $22.92 billion by 2030.
The United States is leading in the transition to zero-emission shipping, backed by federal support. Initiatives like the Inflation Reduction Act allocated $3 billion for rebates and grants, channeled through the Environmental Protection Agency, to fund zero-emission equipment and technology.
As per a Research and Markets report, the maritime digitization market is projected to grow at a 14.2% CAGR from 2023 to 2031. Additionally, the Department of Transportation allocated about $703 million to improve port facilities in 22 states and one territory through the Maritime Administration’s Port Infrastructure Development Program.
According to a Market Research Future report, the global cargo shipping market size is projected to grow at a CAGR of 5.1%, reaching $23.40 billion by 2032.
Let’s take a closer look at the fundamentals of the stocks mentioned above.
FedEx Corporation (FDX)
Headquartered in Memphis, Tennessee, FDX provides transportation, e-commerce, and business services in the United States and internationally. It operates through FedEx Express, FedEx Ground, FedEx Freight, and FedEx Services segments.
On August 29, 2023, FDX announced that its subsidiaries FedEx Express, FedEx Ground, and FedEx Freight would adjust shipping rates on January 1, 2024. FedEx Express shipping rates will increase by an average 5.9% for U.S. domestic, U.S. export, and U.S. import services.
FedEx Ground and FedEx Home Delivery shipping rates will increase by an average of 5.9%. FedEx Ground Economy shipping rates will also increase. FedEx Freight shipping rates will increase by an average of 5.9% and 6.9%.
In terms of the trailing-12-month Return on Common Equity margin, FDX’s 16.14% is 31.2% higher than the 12.30% industry average. Likewise, its 6.98% trailing-12-month Capex/Sales is 129.6% higher than the 3.04% industry average. Additionally, its 1.02x trailing-12-month asset turnover ratio is 27.8% higher than the 0.80x industry average.
FDX’s net sales for the fiscal first quarter that ended August 31, 2023, came in at $21.68 billion. It adjusted operating income increased 29.4% year-over-year to $1.59 billion. The company’s adjusted net income increased 28.1% year-over-year to $1.16 billion. In addition, its adjusted EPS came in at $4.55, representing an increase of 32.3% year-over-year.
Analysts expect FDX’s EPS for the quarter ending November 30, 2023, to increase 30% year-over-year to $4.14. Likewise, its revenue for the quarter ending February 28, 2024, is expected to increase 2.3% year-over-year to $22.69 billion. It surpassed the consensus EPS estimates in each of the trailing four quarters. The stock has gained 48.6% year-to-date to close the last trading session at $257.42.
FDX’s POWR Ratings reflect solid prospects. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked first out of 14 stocks in the B-rated Air Freight & Shipping Services industry. It has a B grade for Sentiment and Quality. To see FDX’s Growth, Value, Momentum, and Stability ratings, click here.
Danaos Corporation (DAC)
Based in Piraeus, Greece, DAC and its subsidiaries own and operate containerships in Australia, Asia, Europe, and the United States. The company offers seaborne transportation services, such as chartering its vessels to liner companies.
In terms of the trailing-12-month EBITDA margin, DAC’s 70.97% is 417.4% higher than the 13.72% industry average. Likewise, its 59.29% trailing-12-month net income margin is 880.1% higher than the 6.05% industry average. Furthermore, its 78.57% trailing-12-month gross profit margin is 158.9% higher than the 30.35% industry average.
For the fiscal third quarter ended September 30, 2023, DAC’s operating revenues came in at $239.22 million. The company’s adjusted net income came in at $142.96 million. Its adjusted EBITDA stood at $178.03 million. Additionally, its adjusted earnings per share came in at $7.26.
Analysts expect DAC’s EPS and revenue for the quarter ending December 31, 2023, to increase 10.2% and 0.8% year-over-year to $7.70 and $254.37 million, respectively. The stock has gained 30.6% year-to-date to close the last trading session at $68.76.
DAC’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, translating to a Buy in our proprietary rating system.
Overseas Shipholding Group, Inc. (OSG)
OSG owns and operates a fleet of oceangoing vessels in the United States. Its vessels transport crude oil and petroleum products in the United States flag trade.
On October 12, 2023, OSG announced an agreement with BP Oil Shipping Company, USA, to acquire the tank vessel Alaskan Frontier, intending to reactivate it with engine upgrades for improved performance, fuel efficiency, and reduced carbon emissions. The vessel, in cold layup since 2019, will return to commercial trade by the fourth quarter of 2024.
Sam Norton, President and CEO at OSG, predicts that the Alaskan Frontier’s acquisition, along with lifecycle engine upgrades and reactivation work, will enhance OSG’s capacity to meet increasing demand due to expanded crude oil production in Alaska.
In terms of the trailing-12-month levered FCF margin, OSG’s 28.50% is 390.3% higher than the 5.81% industry average.
OSG’s time and bareboat charter revenues for the third quarter ended September 30, 2023, increased 0.5% year-over-year to $93.22 million. The company’s operating income rose 25.7% year-over-year to $28.20 million. Its net income rose 32.8% year-over-year to $17.59 million.
Its adjusted EBITDA increased 13.7% year-over-year to $48.12 million. Additionally, its class-A EPS came in at $0.22, representing an increase of 46.7% year-over-year.
OSG’s stock has gained 70.9% year-to-date to close the trading session at $4.94.
OSG’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, translating to a Strong Buy in our proprietary rating system.
It has a B grade for Momentum and Quality. It is ranked first in the Shipping industry. To see OSG’s Growth, Value, Stability, and Sentiment ratings, click here.
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FDX shares were trading at $251.73 per share on Thursday morning, down $5.69 (-2.21%). Year-to-date, FDX has gained 47.70%, versus a 18.62% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments. More...
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