Global supply chain bottlenecks amid soaring demand and a container shortage have caused a substantial increase in shipping costs. In addition, the Suez Canal blockage earlier this year exacerbated the container shortage in the first half of 2021.
According to Drewry Shipping Consultants, the average cost of chartering a 40-feet steel container from Shanghai to Rotterdam is currently 547% higher than the past five-year seasonal average. The rising shipping costs are expected to contribute to increasing inflation.
Analysts expect shipping costs to rise further in the coming months as global demand increases with the fast-paced economic recovery. This should allow shipping companies to generate higher profits as oil prices remain under pressure. Thus, we think popular shipping companies ZIM Integrated Shipping Services Ltd.(ZIM), Matson, Inc.(MATX), and Danaos Corporation(DAC) should grow substantially in the near term.
ZIM Integrated Shipping Services Ltd. (ZIM)
Headquartered in Israel, ZIM provides seaborne cargo transportation and container shipping services internationally. As of March 31, 2021, the company had a fleet of 101 vessels.
ZIM made its stock market debut on January 28 through the traditional IPO process by listing 14.50 million shares on the NYSE. It raised $204 million in net proceeds from the offering.
ZIM’s revenues for its fiscal first quarter (ended March 31) was $1.74 billion, up 112% year-over-year. This can be attributed to a 28% rise in TEUs (Twenty-foot Equivalent Units) and a 76% rise in average freight rate per TEU. Its EBITDA grew 744% from the same period last year to $820.50 million, while its net income increased from a negative year-ago value to a record $589.60 million. And its EPS rose 3,764.3% from the prior-year quarter to $5.13.
On July 6, ZIM and Seaspan Corporation formed a strategic agreement for the long-term charter of ten 7,000 TEU liquefied natural gas (LNG) dual-fuel container vessels in addition to a previous deal for ten 15,000 TEU LNG-fueled vessels. The monetary value of the new agreement is expected to be more than $1.50 billion. This partnership should allow ZIM to secure access to a core fleet while maintaining operational agility.
On June 21, ZIM and Alibaba Group Holding Ltd. (BABA) extended their previous cooperation agreement, signed in 2020, for another two years. Under this agreement, ZIM provides high-quality freight services to BABA customers. This mutually beneficial partnership is expected to help ZIM maintain its position as a leading e-commerce service provider and capitalize on the growing industry trends.
Analysts expect ZIM’s revenues and EPS to rise 64.2% and 247%, respectively, year-over-year to $6.55 billion and $17.42 in its fiscal year 2021. Shares of ZIM have gained 269.5% since its listing on January 28 to close at $42.66 yesterday.
ZIM’s strong fundamentals are reflected in its POWR Ratings. It has an overall A rating, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has a B grade for Growth, Value, Momentum, and Quality. Of the 48 stocks in the Shipping industry, ZIM is ranked #2.
We have also rated ZIM for Sentiment and Stability. Get all ZIM ratings here.
Matson, Inc. (MATX)
MATX is an ocean transporter and logistics services provider that operates in two segments–Ocean Transportation and Logistics. Its customers include the U.S. military, retailers, and automobile manufacturers. The Honolulu, Hawaii-based company has an ISS Governance QualityScore of 1, indicating minimal governance risk.
MATX’s revenues for its fiscal second quarter (ended June 30) came in at $874.90 million, up 66.9% year-over-year. Its Ocean Transport segment revenues increased 66.2% year-over-year to $682.90 million, while its Logistics segment revenues rose 69.5% from the year-ago value to $192 million. Its net income increased 395.4% from the same period last year to $162.50 million, while its EPS came in at $3.71, up 388.2% from the prior-year quarter.
On June 24, the company increased its third-quarter dividends by 30.4% to $0.30 per share, payable on September 2. It also authorized the buyback of three million shares for approximately $190 million. These returns on capital to shareholders demonstrate the management’s confidence in the company’s long-term free cash flow growth.
Analysts expect MATX’s revenues and EPS to rise 21.6% and 64.4%, respectively, year-over-year to $783.28 million and $2.68 in its fiscal third quarter ending September 2021. In addition, MATX surpassed the consensus EPS estimates in each of the trailing four quarters. The stock has gained 81.1% over the past year and 23.6% year-to-date.
MATX has an overall A rating, which equates to a Strong Buy in our proprietary rating system. In addition, the stock has a B grade for Growth, Value, Momentum, and Quality and is ranked #1 in the Shipping industry.
Beyond what we’ve stated above, we have rated MATX for Stability and Sentiment. Get all MATX ratings here.
Danaos Corporation (DAC)
DAC is a seaborne transportation company that charters its vehicles to liner companies across Australia, Asia, Europe, and the United States. The Piraeus, Greece-based company had a fleet of 65 containerships translating to more than 403,000 TEUs capacity as of February 28, 2021.
DAC’s revenues increased 25.3% year-over-year to $146.43 million in the fiscal second quarter ended June 30. Adjusted EBITDA and adjusted net income increased 29.6% and 62% from the same period last year to $103.74 million and $68.86 million. EPS came in at $3.34, up 95.3% from the prior-year quarter.
On July 1, DAC acquired a 51% equity stake in Gemini Shipholdings Corporation. As a result, Gemini is now a wholly owned subsidiary of DAC. Through this acquisition, DAC gained access to 5 Gemini charter vessels, which should increase the company’s contracted revenue by $160 million and contracted EBITDA by $117 million.
Its July 14 agreement to acquire six 5,466 TEU container vessels for $260 million is expected to increase DAC’s contracted revenue and EBITDA by nearly $71 million and $39 million, respectively.
A $587.97 million consensus revenue estimate for its fiscal year 2021 indicates a 27.4% improvement year-over-year. Analysts expect its EPS to rise 87.3% from the same period last year to $13.45 in the current year. The company has an impressive earnings surprise history; it beat the Street’s EPS estimates in three of the trailing four quarters. The popular meme stock has gained 1,366.3% over the past year to close yesterday’s trading session at $68.77.
It’s no surprise that DAC has an overall B rating, which equates to a Buy in our proprietary rating system. In addition, the stock has a grade of B for Momentum, Quality, and Sentiment. Also, it is ranked #4 in the Shipping industry.
Beyond what we’ve stated above, we have rated DAC for Stability, Value, and Growth. Get all DAC ratings here.
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ZIM shares were trading at $42.79 per share on Tuesday morning, up $0.13 (+0.30%). Year-to-date, ZIM has gained 272.09%, versus a 19.26% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...
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