Updated May 4th, 2021 by Bob Ciura
Washington Inc.’s (EXPD) Expeditors International may not be the best-known stock for most investors as it serves a logistics and transportation niche in global commerce. However, the company has an excellent track record of creating value for shareholders, both by appreciating its share price and increasing the dividend payment.
2019 marked the 25th straight year that Expeditors increased its payout to join the Reputable Dividend Aristocrats, a group of S&P 500 stocks with at least 25 consecutive years of dividend increases.
Including Expeditors, there are now 65 Dividend Aristocrats. You can download an Excel spreadsheet of all 65 including key metrics like dividend yields and P / E ratios by clicking the link below:
Expeditors has proven to be a company with strong growth prospects over time, although that growth has by no means been linear. The cyclical nature of the shipping business creates inherent volatility, but over time, Expeditors has seen growth.
Expeditors stock looks fairly valued today and the stock has a low dividend yield. As a result, this may not be the best time to buy into that particular Dividend Aristocrat.
Expeditors is a global logistics company providing services such as air and ocean freight consolidation and forwarding, customs clearance, supplier consolidation, cargo insurance, time sensitive delivery options, order management, warehousing and distribution, and other bespoke logistics solutions. In short, Expeditors provides companies with global trade logistics solutions of all shapes and sizes.
Founded in Seattle in 1979, Expeditors has grown from a single office to more than 300 locations on six continents, spanning more than 100 countries and employing more than 17,000 people.
EXPD is a large-cap stock with a market cap of over $ 19 billion.
The company is pretty well diversified with its revenue streams as we can see below:
Source: Annual Report 2020
Expeditors has seen its stocks rise steadily over the past few years, meaning the company’s market cap is still near $ 19 billion.
Despite the coronavirus pandemic that plunged the U.S. economy into recession, the company performed well in 2020. In 2020, net income rose 18% while earnings per share rose 20% to $ 4.07. The company continued to perform well in the first quarter of 2021 as revenue and earnings per share rose 77% and 135%, respectively.
For the past 10 years, the company has posted earnings growth with a compound annual growth rate (CAGR) of 9.6%. It has elevated slightly to 12.4% CAGR in the last five years. We see that Expeditors are seeing their earnings per share grow in the region of 4% annually, largely thanks to higher sales.
Expeditors remains well positioned to see revenue growth over time across its diverse network of revenue streams. Be aware, however, that recessions, global trade fears, and other shocks pose a growth risk.
From 2014 to 2018, the company increased air freight tonnage, sea containers and gross sales every year. Air freight tonnage increased by 3% in 2018. Tonnage is the preferred volume method that Expeditors use to evaluate performance. While growth rates have been volatile, the general direction has been higher in recent years.
Without the trade war, we believe Expeditors would achieve similar growth traits for the current fiscal year and given that, we believe the long-term trend in volumes is higher. This will help increase revenue over time, as it has for many years.
Sales, operating income, and earnings per share have all increased significantly over time, but there have been periods for all categories that saw negative year-over-year growth. Given the inherently volatile nature of the shipping business, we don’t see this as a change, but we continue to expect mid-single-digit annual earnings per share growth across economic cycles.
We expect sales to make up the majority of those gains, while margins will generally stay flat, with little tailwind from share buybacks. Overall, we forecast 4% annual growth in earnings per share.
Competitive advantage and recession performance
Expeditors’ competitive advantage lies in their size and size in a niche of global goods transportation. Expeditors offers clients the size of a global shipping company with a diverse network of ports and airports, but with the local and tailored options of a smaller company. This is what sets Expeditors apart from others in the logistics industry. Be aware, however, that this is an industry that is difficult to take advantage of.
Expeditors earnings per share during the Great Recession are shown below:
- 2007 earnings per share: $ 1.21
- 2008 earnings per share: $ 1.37
- 2009 earnings per share: $ 1.12
- 2010 earnings per share: $ 1.59
Expeditors saw profits decline, albeit marginally, during the Great Recession. In fact, given their leverage on the global economy, the Expeditors have fared far better than one might think. The next recession is likely to hold back earnings growth temporarily, but it will be far from disastrous for Expeditors given their strong track record during the Great Recession, one of the worst economic periods in recent history.
The company continued to develop well in another particularly challenging phase for the economy in 2020. Expeditors remained highly profitable over the past year, maintaining its impressive streak of annual dividend increases.
Valuation and expected return
While Expeditor’s historical growth and future growth potential are impressive, it appears to be significantly overvalued today. We expect earnings per share for this fiscal year to be $ 4.24. With a share price of $ 114, Expeditors is trading for 26.8 times earnings.
We see 18 times earnings as the fair value for the stock. Therefore, a decrease in the P / E multiple from 26.8 to 18 could lower the annual return by -7.7% per year over the next five years.
Combining the forecast for earnings per share growth of 4% and the current dividend yield of 0.9% results in a total annual return of minus 2.8% for the next five years.
We anticipate Expeditors will continue to grow its dividend very sharply over time as the company has a hard-to-reach track record. Expeditors’ current yield is below the S&P 500 average, making it unattractive to high-income investors, but it remains a strong dividend growth stock.
Expeditors has been a strong player in the logistics industry for many years. The company has a diverse network of global ports and airports that it serves, and offers tailor-made, valuable services to its global customer network. Growth is likely to continue to be volatile and disruptive, especially during recessions, but we see expeditors as attractive over the long term.
Today’s valuation is fair but not cheap, and the yield is quite low at just 0.9%. However, dividend growth is likely to continue for many years to come as the payout ratio is around 25%.
Expeditors appeals to investors with dividend growth, but not those looking for high dividend stock or income security and consistency. Overall, the stock is somewhat attractive today based on its valuation based on historical norms and earnings growth forecasts.
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