Do Air Freight and Logistics Stocks Trade at a Fair Multiple?



The industry trades at a slight premium to the market

Based on a sample of 11 air freight and logistics stocks belonging to the S&P Transportation ETF (XTN), the industry trades at a slight premium to the S&P 500. The industry’s trailing 12-month PE (price to earnings) multiple of 22.46x is at a slight premium to the S&P 500 trailing PE of 20.6x.

As mentioned earlier in the series, the air freight and logistics industry has underperformed compared to the overall market and has yielded negative returns year-to-date, but outperformed the market in 2014. It is worth noting that the S&P 500 trades at a 33% premium to its historical average, as asset prices in the US have benefited a great deal from the low interest rate environment.

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UPS, FDX, and CHRW appear undervalued

In comparison to the industry average for forward PE (forecasted next year earnings) multiples, United Parcel Services (UPS), FedEx (FDX), and C.H. Robinson Worldwide (CHRW) appear to be undervalued. The forward EV/EBITDA multiple for these companies, their above average growth opportunities, their track record for paying regular dividends, and their financial profile also indicate a similar trend.

For investors with a higher risk appetite, XPO Logistics (XPO) seems like a compelling stock given its robust growth rate and its emergence as one of the top logistics operators globally due to its recent acquisitions.


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