Why Analysts Have a ‘Hold’ Opinion on EXPD after Its 2Q17 Earnings
EXPD’s worldwide operations
In this final part of the series, we’ll seek analysts’ opinions of Expeditors International of Washington (EXPD). The company has global operations with 30% of its revenues originating in the US and the remainder coming from overseas. This revenue composition makes the company more vulnerable to foreign currency translations.
EXPD’s three segments face intense competition. Hence, EXPD’s top line has higher volatility compared with limited-geography players.
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Fourteen analysts currently track EXPD. Out of these analysts, one (or 7.1%) each gave a “strong buy” and “buy” recommendation on the stock. Nine analysts (or 64.3%) have a “hold” suggestion, while one analyst (or 7.1%) gave a “sell” recommendation on EXPD stock.
In EXPD’s peer group, C.H. Robinson Worldwide (CHRW) has three “buy” recommendations. Out of 22 analysts, 14 have a “hold” rating on the stock. XPO Logistics (XPO) has 17 analysts out of 19 recommending a “buy” for the stock. Forward Air (FWRD) has two analysts out of ten with a “buy” recommendation, while the remaining have a “hold” opinion on the stock. J.B. Hunt Transport (JBHT) has 11 analysts out of 21 with a “buy” suggestion.
If you have a preference for logistics stocks, you can consider the iShares Transportation Average ETF (IYT). This ETF has 10.8% exposure to key US truckers.
Why analysts have a “hold” opinion on EXPD
As a third-party logistics provider, EXPD’s operating margins are susceptible to volume volatility. The company’s operating margins declined in the reported quarter. Unlike pure-play transportation companies, the company’s top-line growth doesn’t necessarily translate into bottom-line growth.
The company operates in the asset-light business. This may have resulted in the company being a debt-free company. The absence of interest expenses along with stock buybacks could indicate EPS growth for EXPD stock going forward.
On the cash flow front and unlike its peers, EXPD has seen declining cash flows in recent quarters. In 2Q17, its cash flows from operating activities declined 22.8% to $81.2 million. This also reflects the slow growth of the company’s dividends. EXPD pays a semiannual dividend. In May 2017, the company raised its dividend 5% to $0.42 per share.
In our view, EXPD hasn’t been able to drive its EPS (earnings per share) in recent quarters. This trend may have resulted in slow stock price growth in recent quarters.