Amid deepening supply chain disruptions, the demand for shipping remains strong. Therefore, we think it could be wise to bet on quality shipping stocks Nippon Yusen Kabushiki Kaisha (NPNYY) and ZIM Integrated Shipping (ZIM). However, Kirby (KEX) and International Seaways (INSW) are best avoided now because they look significantly overvalued at current price levels. Let’s discuss it all.
The Russia-Ukraine war has aggravated global logistical disruptions. According to the International Chamber of Shipping, Ukraine and Russian merchant marine workers account for 14.5% of the worldwide shipping workforce. The shipping industry thus continues to reel under an acute labor shortage. However, demand for the shipping sector remains strong due to an increasing need for exports and imports amid the deepening supply chain disruptions.
Furthermore, shipping costs are expected to continue surging until mid-2023, benefiting the shipping industry. According to a Zion Market Research study, the shipping container market is expected to grow at a 12.1% CAGR through 2028.
Given this backdrop, we think it could be wise to scoop up quality shipping stocks Nippon Yusen Kabushiki Kaisha (NPNYY) and ZIM Integrated Shipping Services Ltd. (ZIM). However, we think Kirby Corporation (KEX) and International Seaways, Inc. (INSW) are best avoided now because their stock looks significantly overvalued at their current price levels.
Stocks to Buy:
Nippon Yusen Kabushiki Kaisha (NPNYY)
Headquartered in Tokyo, Japan, NPNYY provides marine, land, and air transportation services worldwide. It offers various logistics services, including liner trading, container shipping, terminal, stevedoring services for containerships, car carriers, cruise ships, and air cargo transportation services.
On March 22, 2022, NPNYY, MTI Co. Ltd., and GRID Inc. began developing a model using AI to optimize the efficiency of ship allocation plans of car and truck carriers (PCTCs). This collaboration is expected to foster advanced shipping solutions with sustainability.
NPNYY’s revenues increased 46.3% year-over-year to ¥1.68 trillion ($13.67 billion) for the nine months ended Dec. 31, 2021. Its operating profit came in at ¥197.90 billion ($1.61 billion), up 313.2% year-over-year. And its profit was ¥692.20 billion ($5.65 billion), up 1,223.5% year-over-year.
Over the past year, the stock has gained 146.3% in price to close yesterday’s trading session at $16.92.
NPNYY’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to a Buy in our POWR Rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
Also, the stock has an A grade for Growth and a B grade for Value and Momentum. Within the B-rated Shipping industry, it is ranked #11 of 44 stocks. Click here to see the additional POWR Ratings for Stability, Sentiment, and Quality for NPNYY.
ZIM Integrated Shipping Services Ltd. (ZIM)
Headquartered in Haifa, Israel, ZIM and its subsidiaries provide container shipping and related services in Israel and internationally. It operates a fleet of 101 vessels with a global network of 69 weekly lines.
On March 9, 2022, Eli Glickman, ZIM’s President & CEO, said, “Complementing our ESG objectives, we continue to invest in digital initiatives and disruptive technologies and further strengthen our commercial prospects to drive long-term profitable growth while maintaining our disciplined approach to capital allocation to maximize value for all of ZIM’s stakeholders.”
ZIM’s income from voyages and related services increased 154.7% year-over-year to $3.47 billion for the fourth quarter, ended Dec.31, 2021. Its profit for the year came in at $1.71 billion, up 366.3% year-over-year, while its EPS was $14.17, up 306% year-over-year.
Analysts expect ZIM’s revenue to increase 13.5% year-over-year to $12.17 billion in 2022. Its EPS is expected to grow 54% to $11.38 for the quarter ended June 30, 2022. In addition, it surpassed the Street’s EPS estimates in each of the trailing four quarters. And over the past year, the stock has gained 164.6% in price to close yesterday’s trading session at $67.18.
ZIM has an overall B rating, which equates to a Buy in our proprietary rating system. In addition, it has an A grade for Value and Quality and a B grade for Growth and Momentum.
Stocks to avoid:
Kirby Corporation (KEX)
KEX in Houston, Tex., operates domestic tank barges in the United States. Its segments are Marine Transportation, and Distribution and Services. The company serves various companies and the United States government.
KEX’s total revenues for the fourth quarter (ended Dec. 31, 2021) came in at $591.27 million, up 20.7% year-over-year. However, its net earnings decreased 50.3% year-over-year to $11.15 million, while its EPS fell 51.4% year-over-year to $0.18. Furthermore, its cash and cash equivalents were $34.81 million for the period ended Dec. 31, 2021, versus $80.34 million for the period ended Dec. 31, 2020.
In terms of forward EV/S, KEX’s 2.08x is 19.4% higher than the 1.74x industry average. Furthermore, its 1.58x forward P/S is 15.4% higher than the 1.37x industry average.
KEX’s POWR Ratings reflect its poor prospects. It has a D grade for Sentiment. Click here to access the additional POWR Ratings for KEX (Momentum, Growth, Value, Stability, and Quality). Also, KEX is ranked #33 in the Shipping industry.
International Seaways, Inc. (INSW)
INSW in New York City owns and operates a fleet of oceangoing vessels to transport crude oil and petroleum products in the international flag trade. It operates in two segments, Crude Tankers, and Product Carriers. Currently, it owns and operates a fleet of approximately 83 vessels.
INSW’s total shipping revenues came in at $94.67 million for the fourth quarter, ended Dec. 31, 2021, up 67% year-over-year. However, its cash and cash equivalents were $97.88 million for the period ended Dec. 31, 2021, compared to $199.39 million for the period ended Dec. 31, 2020. Its total current assets came in at $224.50 million compared to $256.83 million for the same period. The company’s restricted cash came in at $1.05 million compared to $16.29 million for the same period.
In terms of forward EV/S, INSW’s 3.79x is 67% higher than the 2.27x industry average. Also, its 1.80x forward P/S is 13.5% higher than the 1.59x industry average.
INSW’s POWR Ratings are consistent with this bleak outlook. The stock has an overall D rating, which equates to a Sell in our proprietary rating system. In addition, the stock has a D grade for Sentiment, Stability, Value, Growth, and Quality.
NPNYY shares were unchanged in premarket trading Tuesday. Year-to-date, NPNYY has gained 8.74%, versus a -3.76% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master’s degree in economics, she helps investors make informed investment decisions through her insightful commentaries.