The crisis in the Red Sea is boosting shipping stocks, especially ZIM Integrated Shipping (NYSE:ZIM) stock, which Jefferies is upgrading to a “buy.”
The brokerage set a one-year price target of $20 for the international shipping company.
ZIM was due to open this morning at $14.80 per share, a market capitalization of almost $1.8 billion on an estimated 2023 revenue of $6.1 billion. The stock was up about 10% over the weekend.
Making Money From War
ZIM was expecting a 2023 loss of $2.1 billion as falling prices hit its results. The loss equates to $17.75 per share, which is more than the company is worth.
However, the latest crisis is causing some analysts to rethink their position. Boats are going around Africa rather than through the Red Sea passage and risk being attacked by Houthi militants. This means they will be at sea longer and take bigger risks from violence (particularly from other pirates on the west coast of Africa) and weather.
ZIM, which is based in Israel, is now a “cash machine,” according to Jefferies. The shipping company isn’t even expected to report fourth-quarter results until March 11, giving speculators plenty of time to get in.
ZIM came public in January 2021, valued at about $1.5 billion. Shares sold for over $80 at their peak in April 2022. Their low was under $8 late last year.
ZIM is an “asset light” line, working many deals through third parties and owning few boats. The structure makes for volatile results. The line charters about 100 ships but only bought seven in 2021 after its initial public offering (IPO).
Tipranks has only four analysts following ZIM, with two saying hold and two saying sell. Traders at Stocktwits are bullish, although message volume remains low. Bulls see the potential for a short squeeze, with one-quarter of the shares currently being held short.
ZIM Stock: What Happens Next?
Events too complicated to explain would mean peace would be very bad for those long on ZIM. But if the crisis continues, the money will come rolling in from every side.
As of this writing, Dana Blankenhorn did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
