- Sky-high container shipping rates have been a boon for ZIM Integrated Shipping (ZIM).
- After paying out a special dividend and with shipping rates moving lower, you may think you missed the boat.
- However, don’t fear going full steam ahead with ZIM stock. Rates could stay above pre-2021 levels for quite some time.
ZIM Integrated Shipping (NYSE:ZIM) is by no means a household name, but it has been one of the biggest beneficiaries of the global supply chain crisis. One of the world’s largest container shipping companies, the big jump in freight prices have been a boon for the company and for ZIM stock.
Thanks to an earnings windfall, it even managed to pay out a $17 per share special dividend last month. For reference, the stock traded for $88 per share right before the ex-dividend date. Due to the dividend and concerns over the recent drop in shipping rates from recent highs, shares have made a retreat to just under $52 per share.
However, don’t read this to mean the ship has sailed — literally — in this case. Although rates are pulling back, there is a strong chance they could take time to normalize. With this, don’t be afraid to go full steam ahead.
|ZIM||ZIM Integrated Shipping Services Ltd.||$51.51|
ZIM Stock at a Glance
Based in Israel, but with a secondary headquarters in Norfolk, Virginia, ZIM Integrated Shipping has a global presence. Its 110 vessel strong fleet transports dry and refrigerated cargo to and from all the world’s inhabited continents.
As such, it is no surprise that the big increase in shipping prices, as measured by the Global Container Freight Index, has resulted in such strong results for the company. For 2021, its top line soared 169% versus 2020, from $3.47 billion to $10.73 billion. Net income of $4.65 billion represented a 787% increase from 2020’s earnings of $524 million.
During 2021, ZIM stock experienced a similarly-large spike in its share price. Interestingly enough, it debuted on the New York Stock Exchange in 2021, as well. Opening at just $11.02 per share on its first day of trading in January, it ended the year at nearly $60 per share. In March, it hit an all-time high of $91.23 per share.
Again, it has fallen considerably from this level over the past month. But don’t think for a second that you’ve missed the boat. While sinking at present, continued strong results stand to send it back to higher prices.
Normalization of Shipping Rates Will Take Time
Container shipping is an extremely cyclical business. That is a big reason why ZIM stock trades at such a low valuation. At current prices, it trades for just 1.5x expected 2022 earnings. Shipping prices can swing wildly. What will happen if shipping rates fall back to pre-2021 levels?
As you can see in ZIM’s past results, profits will sink back to amounts measured in millions, not billions. With this, many are fearful that what played out this year will be a one-and-done event. However, while shipping rates are dropping, a return to normal for freight rates may take time.
This year is set to remain another banner one for ZIM Integrated. Per the Wall Street Journal, sell-side analysts estimate ZIM Integrated will earn around $37.87 per share. In 2023, with assumed drops in rates factored in, the sell-side anticipates earnings of $14.61 per share.
In other words, it would not be a full drop to the $5.18 per share it earned in 2020, or the net losses it reported in 2019 and 2020. The trip back back down could be a whole lot longer than the trip up.
The Verdict on ZIM Stock
Earning an “A” rating in my Portfolio Grader, I’ll say it again: the ship hasn’t sailed just yet for ZIM stock. Following the big jump in excitement for it due to Russia-related tailwinds, plus the dividend, market enthusiasm has temporarily calmed down.
However, that is not to say it has peaked in price. Shipping rates aren’t set to normalize anytime soon. In fact, it may take longer than anticipated for them to make a full return to pre-2021 levels. With this, the company could continue to crush it with its quarterly earnings. In turn, this may enable the stock to make a return to higher price levels.
Management could decide to issue more large special dividends. This could also move the needle. To top it all off, this logistics powerhouse is putting money back into the business. It continues to expand its fleet via chartering deals. Continuing to grow the size of its business will help it continue to perform well over a long timeframe.
A buy following its recent weakness, consider hopping aboard ZIM stock before it sets sail once again.
On the date of publication, Louis Navellier had a long position in ZIM. Louis Navellier did not have (either directly or indirectly) any positions in any other securities mentioned in this article. The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.