ZTO Express Cayman Inc. ZTO is facing significant challenges. Escalating operating expenses and weak financial stability are adversely affecting the company’s bottom line, making it an unattractive choice for investors’ portfolios.

Let’s delve deeper.

ZTO: Key Risks to Watch

Southward Earnings Estimate Revision:The Zacks Consensus Estimate for current-year earnings has moved 1.7% south in the past 60 days. For the next year, the consensus mark for earnings has been revised 0.5% downward in the same time frame. The unfavorable estimate revisions indicate brokers’ lack of confidence in the stock.

Unimpressive Price Performance: ZTO Express Cayman shares have declined 5.7% in the past year against the industry’s 5.9% rise.

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Weak Zacks Rank: ZTO currently carries a Zacks Rank #4 (Sell).

Bearish Industry Rank: The industry to which ZTO belongs currently has a Zacks Industry Rank of 191 (out of 251). Such an unfavorable rank places it in the bottom 24% of Zacks Industries.Studies show that 50% of a stock price movement is directly related to the performance of the industry group it belongs to.

A mediocre stock within a strong group is likely to outclass a robust stock in a weak industry. Reckoning the industry’s performance becomes imperative.

Headwinds: ZTO Express is facing increasing pressure on its bottom line due to rising operating expenses, challenging its financial stability. In the second quarter of 2024, total operating expenses increased by 5% year over year, driven by higher labor costs.

In the second quarter of 2024, labor costs, including compensation and benefits, surged 17.5% year over year, totaling $683.7 million. General supplies and expenses rose 15% to $81.6 million, and interest expenses climbed to $15.94 million in the same time period.

This upward trend in expenses reflects broader cost pressures, especially in labor, which could continue to impact ZTO's bottom line if not managed effectively. The company will need to find ways to control costs or enhance revenue growth to maintain financial stability.

Moreover, high competition in the domestic express delivery market, led by major players like SF Express and STO Express, could drive down the company’s stock price if it intensifies.

Stocks to Consider

Some better-ranked stocks for investors’ consideration in the Zacks Transportation sector include Ryanair RYAAY and SkyWest SKYW.

Ryanair currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.  RYAAY has an expected earnings growth rate of 9.2% for the current year.

The company has an impressive earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in three of the trailing four quarters and missed once, delivering an average miss of 31.05%. Shares of RYAAY have risen 12.3% in the past year.

SKYW sports a Zacks Rank #1 at present andhas an expected earnings growth rate of 2.6% for the current year.

The company has an encouraging track record with respect to the earnings surprise, having surpassed the Zacks Consensus Estimate in each of the trailing four quarters. The average beat is 79.1%. Shares of SKYW have climbed 156.5% in the past year.

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ZTO Express (Cayman) Inc. (ZTO) : Free Stock Analysis Report

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