ZIM Integrated Shipping Services (ROOM – Free Report) is one of the most followed stocks by Zacks.com visitors lately. As such, it might be a good idea to review some of the factors that could impact the stock’s near-term performance.
Shares of this container shipping company have returned +5% over the last month, while the Zacks S&P 500 Composite is up +6.8%. The Zacks Transportation – Shipping industry, which includes ZIM, is up 5.4% over the period. The key question now is: Where could the stock head in the short term?
Although media reports or rumors of a significant change in a company’s business prospects usually cause the stock to trend and result in an immediate price change, there are always certain fundamental factors that ultimately drive the buy-and-hold decision.
Revisions to earnings estimates
Rather than focusing on anything else, at Zacks we prioritize assessing the change in a company’s earnings outlook. This is because we believe the fair value of its stock is determined by the present value of its future income streams.
Essentially, we look at how sell-side analysts who cover the stock are revising their earnings estimates to reflect the impact of recent business trends. And when earnings estimates for a company go up, the fair value of its stock goes up. A higher fair value than the current market price attracts investors to buy the stock, causing the price to rise. For this reason, empirical research shows a strong correlation between trends in earnings estimate revisions and short-term stock price movements.
For the current quarter, ZIM is expected to report earnings per share of $3.66, a -74.2% change from the same quarter last year. The Zacks consensus estimate has remained unchanged for the past 30 days.
Consensus earnings estimate of $38.18 for the current fiscal year indicates a change of -2.2% year-on-year. This estimate has changed by +0.5% in the last 30 days.
For the next fiscal year, the consensus earnings estimate of $4.07 shows a change of -89.4% from what ZIM was expecting a year ago. Over the past month, the estimate has changed by -9.5%.
Our proprietary stock ranking tool, the Zacks Rank, has a strong, third-party audited track record and provides a more meaningful picture of a stock’s near-term price action by effectively harnessing the power of earnings estimate revisions. Based on the magnitude of the recent consensus estimate change and three other factors related to earnings estimates, ZIM is rated Zack’s #5 rank (Strong Sell).
The chart below shows the development of the company’s 12-month consensus EPS estimate:
12 Month EPS
Projected sales growth
As such, while earnings growth is arguably the best indicator of a company’s financial health, nothing happens when a company is unable to grow its earnings. After all, it’s nearly impossible for a company to grow its profits over a sustained period of time without increasing sales. Therefore, it is important to know a company’s potential revenue growth.
In the case of ZIM, the consensus estimate of revenue of $2.22 billion for the current quarter suggests a -36% change from a year earlier. The estimates of $12.62 billion and $7.17 billion for the current and next fiscal years indicate changes of +17.7% and -43.2%, respectively.
Latest reported results and surprise history
ZIM reported revenue of $3.23 billion for the most recent reported quarter, a +2.9% year-over-year change. EPS of $9.66 for the same period compared to $12.16 a year ago.
Compared to the Zacks Consensus estimate of $3.01 billion, reported earnings represent a surprise of +7.27%. EPS surprise was +2.11%.
In the last four quarters, ZIM beat consensus estimates for earnings per share three times. The company twice beat consensus sales estimates during the period.
No investment decision can be efficient without considering a stock’s valuation. When predicting the future price development of a stock, it is crucial to determine whether its current price accurately reflects the intrinsic value of the underlying business and the company’s growth prospects.
Comparing the current value of a company’s valuation multiples, such as B. Price to Earnings (P/E), Price to Sales (P/S), and Price to Cash Flow (P/CF), with its own historical values help determine whether the stock is Fairly Valued, Overvalued or Undervalued while making the comparison of the company relative to its peers based on these parameters gives a good indication of how reasonable the stock price is.
The Zacks Value Style Score (part of the Zacks Style Scores system), which pays close attention to both traditional and unconventional valuation metrics to rank stocks from A to F (an An is better than a B; a B is better than a C; etc.) is quite helpful in determining whether a stock is overvalued, correctly valued, or temporarily undervalued.
ZIM is rated A on this front, indicating it is trading at a discount to its peers. Click here to view the values of some of the assessment metrics that led to this grade.
The facts discussed here and plenty of other information on Zacks.com may help determine whether or not the ZIM market clamor is worth paying attention to. However, its #5 Zacks rank suggests that it could underperform the broader market in the near term.