ZIM - ZIM Integrated vs. Kirby: Which Shipping Stock is a Better Buy?

ZIM Integrated Shipping Services Ltd. (ZIM) is an Israel-based company that provides shipping and logistics services worldwide. The company offers multi-modal, cargo handling, tariff management, schedule information, and other related services, such as shipping agencies, storage, distribution, forwarding and land transportation.

Kirby Corporation (KEX) in Houston, Tex., operates a fleet of inland tank barges. The company transports industrial chemicals, refined petroleum products, black oil products, and agricultural chemicals. It also overhauls and services diesel engines employed in marine, power generation, and rail applications.

A near halt in industrial activities amid the COVID-19 pandemic led to a decline in demand for the shipping of bulk goods and commodities. The  gradual resumption of industrial activities globally this year has been reviving that demand, however. Furthermore, to remain competitive  in this digital era, the industry has been adopting technology solutions for tracking shipments, safe packaging and storage, thus providing an even faster and more efficient service to customers.

Rising investor optimism about the industry’s growth prospects is evident in the Breakwave Dry Bulk Shipping ETF’s (BDRY) 262.1% returns year-to-date compared to the SPDR S&P 500 Trust ETF’s (SPY) 13% gains. The global dry bulk shipping market is expected to grow at a 5.1% CAGR over the next seven years. So, we think ZIM and KEX could benefit substantially.

While KEX lost 4.3% over the past month, ZIM gained 2.3%. And in terms of their past three months’ performance, ZIM is a clear winner with 92.9% gains versus KEX’s 4.6% returns. But, which of these stocks is a better pick now? Let’s find out.

Recent Financial Results

ZIM’s income from voyages and related services for its fiscal first quarter, ended March 31, 2021, increased 111.9% year-over-year to $1.74 billion. The company’s gross profit was  $735.58 million, up 1173.4% from the prior-year period. Its operating income is reported at $683.46 million for the quarter, which represents a 2645.2% improvement year-over-year. ZIM’s net income came in at $589.59 million, compared to an $11.92 million loss in the prior-year period. Its EPS is reported at $5.13, compared to a $0.14 loss in the year-ago period. The company had $1.19 billion in cash and cash equivalents as of March 31, 2021.

Note that ZIM is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Growth portfolio. Learn more here.

For its fiscal first quarter, ended March 31, 2021, KEX's total revenues decreased 22.8% year-over-year to $496.85 million. The company’s operating income came in at $3.16 million, compared to a $509.70 million loss in the  prior-year period. Its net loss is reported at $3.12 million, which represents a 99.1% year-over-year decline. Its loss per share decreased 99% year-over-year to $0.06. As of March 31, 2021, the company had $52.33 million in cash and cash equivalents.

Past and Expected Financial Performance

ZIM’s revenue and EBITDA has grown at CAGRs of 16.9% and 91.6%, respectively, over the past three years. The company’s EBIT has increased at a 135.4% CAGR over the past three years.

Analysts expect ZIM’s revenue to increase 72.4% year-over-year in the current year (ending December 2021) and then decline 19.7% next year. Its EPS is expected to increase 283.6% year-over-year in the current year and decline 67.2% next year.

In comparison, KEX’s revenue and EBITDA have declined  at CAGRs of 6.4% and 9.5%, respectively, over the past three years. The company’s EBIT has declined at a 23.4% CAGR over the past three years.

Analysts expect KEX’s revenue to increase marginally in the current year (ending December 2021), and 10.7% next year. Its EPS is expected to decrease 45.7% in the current year and then increase 147.5% next year.

Profitability

ZIM’s trailing-12-month revenue is 2.4 times KEX’s. ZIM is also more profitable, with a 27.8% EBIT Margin versus KEX’s 4.8%.

Also, ZIM’s ROE, ROA and ROTC values of 283.2%, 27.9% 37.6%, respectively, compare favorably with KEX’s 2.3%, 1% and 1.3%.

Valuation

In terms of non-GAAP forward P/E, KEX is currently trading at 63.03x, which is 96.3% higher than ZIM, which is currently trading at 2.35x. ZIM’s 0.86x forward EV/Sales is significantly lower than KEX’s 2.37x.

Also, in terms of forward EV/EBITDA, KEX’s 15.64x is 87.5% higher than ZIM’s 1.96x.

POWR Ratings

While KEX has an overall C grade, which translates to Neutral in our proprietary POWR Ratings system, ZIM has an overall A grade, which equates to Strong Buy. The POWR Ratings are calculated considering 118 different factors, each weighted to an optimal degree.

In terms of Value, ZIM has been graded a B grade, which is consistent with its lower-than-industry valuation ratios. ZIM’s 0.74x forward Price/Sales value  is 53.3% lower than the 1.60x industry average. However, KEX’s C grade for Value reflects its slightly higher valuation versus  its peers. The company has a 1.72x Price/Sales, which is 8% higher than the 1.60x industry average of 1.60x.

However, ZIM has a B grade for Quality, which is consistent with its higher-than-industry profitability ratios. The company’s 22.8% net income margin is 351.1% higher than the 5.1% industry average. KEX’s C grade for Quality is in sync with its slightly lower-than industry profit margins. The company’s 3.5% net income margin is 30.2% lower than the 5.1% industry average.

Of 48 stocks in the Shipping industry, KEX is ranked #29, while ZIM is ranked #1.

Beyond what we’ve stated above, our POWR Ratings system has also rated both ZIM and KEX for Growth, Momentum, Stability, and Sentiment. Get all KEX ratings here. Also, click here to see the additional POWR Ratings for ZIM.

The Winner

The need for shipping services to transport raw materials from various parts of the world with the reopening of economies makes the prospects bright for the industry. So, both ZIM and KEX are well positioned to benefit in the coming months. However, we think ZIM appears to be a better buy here based on its higher profitability and stable valuation.

Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Shipping industry. 

ZIM shares were trading at $47.32 per share on Thursday afternoon, up $2.77 (+6.22%). Year-to-date, ZIM has gained 311.48%, versus a 14.50% rise in the benchmark S&P 500 index during the same period.

About the Author: Sweta Vijayan

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.

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