Most investors have been worried about the state of the shipping industry. Transportation stocks have underperformed the broader market ever since bottlenecks and supply chain issues caused by the COVID-19 pandemic created a difficult business environment for those who operate in the space. Today, a mid-cap shipping stock shows that the industry is actually starting to look up now.
Shares of ZIM Integrated Shipping Services Ltd. (NYSE: ZIM) rose by as much as 16.7% in a single day, as most bearish traders were forced to bail out of their short views for this company. The rally is 100% accredited to the recent second quarter 2024 earnings announcement, which pointed ZIM’s financials in the right direction today despite all of the potential issues brewing in the background for the global supply chain landscape.
Wall Street analysts reiterated their bullish view on the stock right after the earnings announcement, and that is encouraging for shareholders looking to stick by ZIM in the coming months, especially for those on the sidelines awaiting further confirmation to potentially justify a position in this shipping leader. For the sideliners, here’s what drove the earnings rally for ZIM stock.
ZIM Stock Soars as Key Business Drivers Spark Optimism
Every business and industry has its own set of key performance indicators (KPIs), but the one that every single operator shares is the top line, also known as revenue. This quarter, sales reached $1.93 billion for ZIM, representing a net growth rate of 48% over the past 12 months.
While that could have boosted the stock, it’s not meaningful enough for a nearly 20% rally in one day. Moving deeper into the most common drivers in the business, investors can look into ZIM’s free cash flow (operating cash flow minus capital expenditures), which reached $712 million this quarter, or a jump of 391% over the year.
This shift in free cash flow helped the one metric investors (and markets) care about the most swing into positive territory. Earnings per share (EPS) jumped to $3.84 from a net loss of $2.29 a year prior. That type of recovery fits a double-digit rally more, but there’s more.
Looking into the future, analysts at Jefferies Financial Group reiterated their Buy rating for ZIM stock, with a price boost potentially following shortly after from other banks. Why? ZIM management has already given the public a preview of what the rest of the year might bring.
Shipping volumes are rising, with an 11% increase over the past year alone. Considering the current freight rates (which have also been on the rise), it was easy for management to provide more optimistic guidance moving forward.
ZIM Stock Forecast: Bright Future Ahead for Investors
Considering the current conflicts affecting shipping and freight patterns in the Middle East, especially the Red Sea crisis, freight rates could reach new highs as demand comes online from potentially easing policies in leading nations.
With the Federal Reserve (the Fed) promising interest rate cuts by the end of 2024, business activity—including shipping—might see better days ahead, and ZIM management shows all of these trends working in favor of the company in the following quarters.
Knowing that the future is brighter now for ZIM stock, short interest in the company has been on a downtrend for the past two quarters, a sign of bearish capitulation with sentiment shifts attached. Adding to the momentum and potentially filling in the gaps bears left, up to $143 million in institutional capital has made its way into ZIM stock.
Among these buyers were the company's largest shareholders, Renaissance Technologies, who boosted their stakes by 479.9% as of August 2024 for a net investment of up to $58.4 million. In today's economy, institutional and retail investors might find another bullish factor to justify taking a second look at this stock.
After witnessing the recent financial strength for the quarter, management also boosted the quarterly dividend payout to $0.93 a share, which would come out to be an annualized yield of up to 4.2% today to beat both inflation and GDP growth in the United States.
But here's another significant statistic for those worried about considering a stock after such a big rally. Valuations are typically where the discounts can be justified. For ZIM stock, this opportunity comes in the form of a price-to-book (P/B) multiple.
Trading at only 1.1x P/B puts ZIM stock below the transportation sector's average valuation of 2.05x, and that's where investors can rest assured that more upside could be ahead for this company, especially with the new guidance and the bottlenecking state of the shipping industry.
