2 Air Freight & Cargo Stocks to Keep An Eye On Amid Demand Woes

Core Viewpoint - The Zacks Transportation—Air Freight and Cargo industry is facing significant challenges due to ongoing supply-chain disruptions, high inflation, and weaker demand, leading to reduced package volumes [1][4]. Industry Overview - The industry comprises companies providing air delivery and freight services, with many offering specialized transportation and logistics solutions. The health of these companies is closely tied to the overall economy, with major players like FedEx transporting millions of packages daily [3]. Key Trends - Economic Uncertainty & Tariff Concerns: The industry is affected by market volatility and tariff uncertainties, particularly with China, which may lead to higher costs and dampen consumer spending [4]. - Demand Slowdown: A decline in shipping demand, especially in Asia and Europe, is negatively impacting key players like UPS and FedEx, leading to withheld earnings and revenue forecasts [5]. - Strong Financial Returns for Shareholders: Companies are increasing dividends and buybacks to reward shareholders, indicating financial strength. UPS raised its quarterly dividend to $1.64 per share, while FedEx increased its dividend by 5.1% to $1.45 [6]. Industry Performance - The Zacks Air Freight and Cargo industry ranks 202, placing it in the bottom 18% of 245 Zacks industries, indicating poor near-term prospects [7][8]. - The industry has underperformed the S&P 500, decreasing by 26.5% over the past year compared to the S&P 500's increase of 17.7% [9]. Current Valuation - The industry is currently trading at an enterprise value-to-EBITDA (EV/EBITDA) ratio of 7.97X, significantly lower than the S&P 500's 17.45X and the sector's 9.37X [12]. Stocks to Watch - FedEx (FDX): The company is focused on rewarding shareholders through dividends and buybacks, with a solid liquidity position and cost-cutting efforts driving its bottom line. FDX has surpassed earnings estimates in two of the last four quarters [16][17]. - GXO Logistics (GXO): The company is enhancing its logistics capabilities, benefiting from increased e-commerce and automation. GXO has consistently surpassed earnings estimates, with shares rising 9.7% over the past year [19].