ZTO Express (ZTO – Free Report) is currently mired in multiple headwinds, which, we believe, have made it an unimpressive investment option.
Let’s delve deeper.
ZTO’s Bearish Parcel Volume Guidance for 2024
ZTO’s bearish parcel volume guidance for 2024 looks disappointing. ZTO Express updates its 2024 parcel volume guidance in the range of 33.7 billion-33.9 billion. The updated guidance represents an increase of 11.6-12.3% year over year. Previously, ZTO expected 2024 parcel volumes in the range of 34.73-35.64 billion. The guidance represents an increase of 15%-18% year over year.
Other Headwinds Weighing on ZTO Stock
The domestic express delivery market is highly competitive due to the presence of big players like SF Express and STO Express. If competition intensifies, the company’s stock price may decrease.
Higher selling, general and administrative (SG&A) expenses are pushing operating expenses and hurting the bottom line. In 2023, SG&A expenses increased 25.6% year over year. During the third quarter of 2024, SG&A expenses increased 17.5% year over year.
ZTO’s Unimpressive Price Performance
Shares of ZTO Express have not had a good time on the bourses of late, declining in double-digits over the past three months. The disappointing price performance resulted in ZTO underperforming its industry in the said time frame.
Three-Month Price Comparison
Image Source: Zacks Investment Research
ZTO’s Weak Zacks Rank and Valuation
ZTO Express currently carries a Zacks Rank #5 (Strong Sell).
From a valuation perspective, ZTO is still trading higher than the industry. Going by its price/sales ratio, the company is trading at a forward sales multiple of 1.97, higher than the industry average of 1.84. The company has a Value Score of C.
Image Source: Zacks Investment Research
Bearish Industry Rank
The industry to which ZTO belongs currently has a Zacks Industry Rank of 200 (out of 248 groups). Such a weak rank places the industry in the bottom 19% of the Zacks industries. Studies have shown that 50% of a stock price movement is directly tied to the performance of the industry group that it hails from.
In fact, a robust stock in a weak industry is likely to underperform an ordinary stock in a strong group. Therefore, considering the industry’s performance becomes imperative.
Stocks to Consider
Some better-ranked stocks from the Zacks Transportation sector are Southwest Airlines (LUV – Free Report) and SkyWest (SKYW – Free Report) ). Each stock presently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Improvement in air travel demand bodes well for Southwest Airlines’ top line. LUV’s solid balance sheet allows the company to reward its shareholders through share buybacks and dividend payments.
LUV has an expected earnings growth rate of 105% for 2025. The Zacks Consensus Estimate for 2025 earnings has been revised 5.3% upward in the past 60 days.
SKYW has an impressive earnings surprise history. The company’s earnings outpaced the Zacks Consensus Estimate in each of the trailing four quarters, delivering an average surprise of 79.1%. The Zacks Consensus Estimate for 2025 earnings has been revised 5.3% upward in the past 60 days.
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