3 Transport-Service Stocks Showing Promise Despite Industry Headwinds

The Zacks Transportation-Services industry faces challenges, ranging from dull freight rates, high inflation, and lingering supply-chain disruptions. The tariff-related uncertainty and geopolitical woes represent further challenges for this key industry.

Yet, beneath the gloom lies a glimmer of long-term promise. Driven by solid fundamentals, companies like Expeditors International of Washington EXPD, C.H. Robinson Worldwide CHRW and Matson MATX are highly likely to weather near-term challenges and seize opportunities as the cycle turns.

About the Industry

The companies belonging to the Zacks Transportation-Services industry offer transporters logistics, leasing and maintenance services. Some industry players focus on the business of global logistics management, including international freight forwarding. Third-party logistics entities provide innovative supply-chain solutions. They also focus on services like product sourcing, warehousing and freight shipping. These companies have expertise in trucking, air and ocean transportation. Some players in this industry deliver domestic and international express delivery services. The well-being of the companies in this industrial cohort is directly proportional to the health of the economy. An uptick in manufactured and retail goods, favorable pricing and improvement in global economic conditions bode well for industry participants.

4 Trends Shaping the Future of the Transportation-Services Industry

Supply-Chain Disruptions & Weak Freight Rates: Although economic activities picked up from the pandemic gloom, lingering supply-chain disruptions continue to dent stocks in the industry. Below-par freight rates are also hurting the industry’s prospects. Highlighting the weak freight demand, the Cass Freight Shipments Index declined 2.4% year over year in June. This measure has deteriorated year over year each of the past 11 months, which confirms the overall declining trend.

Focus on Cost-Cuts to Drive Bottom Line: Despite signs of cooling inflation, we are by no means out of the woods. We note that the industry has been experiencing significant levels of inflation, including higher prices for labor and freight. The industry players are focusing on cost-cutting measures and making efforts to improve productivity and efficiency, to mitigate high expenses and a weaker-than-expected demand scenario.

Strong Financial Returns for Shareholders: With economic activities gaining pace from the pandemic lows, more and more companies are allocating their increasing cash pile by way of dividends and buybacks to pacify long-suffering shareholders. This underlines their financial strength and business confidence. Among the Transportation – Services industry players, Matson’s board of directors approved a dividend hike of 5.9%, thereby raising its quarterly cash dividend to 36 cents per share ($1.44 annualized) from 34 cents ($1.36 annualized).

Tariff Turmoil — A Key Headwind: The current administration is focused on protectionism that restricts international trade to help domestic industries. The U.S. administration’s tariff policies are reshaping the transportation service industry by increasing costs, disrupting supply chains, and influencing consumer behavior. The tariff turmoil is hurting global trade. Tariff-induced economic uncertainties and trade tensions may create uncertainty for investors interested in the industry. 
 

Zacks Industry Rank Indicates Dull Prospects

The Zacks Transportation - Services industry is a 21-stock group within the broader Zacks Transportation sector. The industry currently carries a Zacks Industry Rank #179, which places it in the bottom 27% of 245 Zacks industries.

The group’s Zacks Industry Rank, the average of the Zacks Rank of all member stocks, indicates dismal near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

The industry’s position in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group’s earnings growth potential. The industry's earnings estimate for 2025 has decreased 31.2% since August 2024.
Before we present a few stocks from the industry that you may want to buy, let’s take a look at the industry’s recent stock market performance and the valuation picture.

 

Industry Lags S&P 500 But Outperforms Sector

The Zacks Transportation-Services industry has underperformed the Zacks S&P 500 composite while outperforming the broader Transportation sector in a year.

The industry has declined 12.8% over this period, underperforming the S&P 500's appreciation of 12.2% and outperforming the broader sector’s slide of 27.9%.

One-Year Price Performance

 

Industry's Current Valuation

Based on the forward 12-month price-to-sales, a commonly used multiple for valuing Transportation-services stocks, the industry is currently trading at 1.32X compared with the S&P 500's 5.26X. The value is also lower than the sector's trailing 12-month P/S of 1.45X.

Over the past five years, the industry has traded as high as 2.93X, as low as 1.23X, and at the median of 1.86X.

Price-to-Sales Ratio (F12M)

 

3 Transport-Services Stocks to Monitor Now

Expeditors, a leading third-party logistics provider, is based in Seattle, WA. EXPD currently has a Zacks Rank #2 (Buy). EXPD beat the Zacks Consensus Estimate in each of the last four quarters by an average of 13.3%.

While weak volumes (concerning air-freight tonnage and ocean containers) stemming from soft demand and declining rates are hurting EXPD’s performance, efforts to cut costs in the face of demand weakness are driving the bottom line.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here 

Price and Consensus: EXPD

C.H. Robinson, currently carrying a Zacks Rank #3 (Hold), operates as an asset-light logistics player. Efforts to control costs bode well for this freight broker. Measures to reward CHRW's shareholders bode well. CHRW’s liquidity position is encouraging, too.

CHRW has surpassed the Zacks Consensus Estimate for earnings in each of the past four quarters. The average beat is 14.5%.

Price and Consensus: CHRW

Matson: Headquartered in Honolulu, HI, Matson provides ocean transportation and logistics services. We are impressed by the cost-management actions taken by the company to drive its bottom line. Its efforts to reward its shareholders are also commendable.

MATX carries a Zacks Rank #3 currently. MATX beat the Zacks Consensus Estimate in three of the last four quarters, missing the mark once. The average beat is 9.7%.

 

Price and Consensus: MATX

 

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C.H. Robinson Worldwide, Inc. (CHRW): Free Stock Analysis Report
 
Expeditors International of Washington, Inc. (EXPD): Free Stock Analysis Report
 
Matson, Inc. (MATX): Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

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