Shares of ZIM Integrated Shipping Services Ltd. ZIM have slipped 9.9% in the past three months after performing brilliantly for most of 2024. In fact, ZIM shares skyrocketed 160% in the first nine months of 2024.

Despite slipping from the meteoric highs in the past three months, ZIM shares have performed better than its industry and fellow industry players, Seanergy Maritime Holdings SHIP and Frontline Plc FRO. Shares of Seanergy Maritime and Frontline have declined 30.5% and 25.7%, respectively, and the industry has shrunk 24.6% in the past three months.

Three-Month Price Comparison

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The shipping industry, of which ZIM is an integral part, is being hit by growing trade tensions globally. The industry is responsible for a high majority of goods involved in world trade. Trade-related tensions have the potential of slowing down goods transportation. 

The looming escalation of U.S.-China trade tensions does not bode well for stocks like ZIM. President-elect Donald Trump aims to implement a broad 10 to 20% tariff on all imports and has suggested an even steeper tariff on Chinese goods, potentially ranging from 60% to 100%. Trump has also announced plans to impose a 25% tariff on imports from Canada and Mexico. The prospect of retaliatory tariffs from the concerned countries cannot be ruled out, in turn, escalating trade tensions. Shipping stocks like ZIM will be hit by higher operating costs, lower global trade volumes and shipping rates, in the event of higher trade tariffs being imposed.

Having said that, ZIM’s robust fundamentals can’t be ignored. The pullback over the past three months might be an opportune moment to buy ZIM shares for long-term investors. Currently priced at $19.09, the stock is 36.7% below its 52-week high, leaving ample room for growth. ZIM currently has a Growth Score of A.

Reasons for Staying Bullish on ZIM Stock

Impressive Business Model: The shipping company’s asset-light model, which means that the focus is more on leasing rather than owning vessels, allows it to adjust capacity rapidly in response to market changes. This practice helps it boost profits during high demand.

ZIM’s focus on niche markets and high-margin trade routes helps it avoid crowded, low-margin segments, thereby maintaining strong pricing power. This, too, aids profitability. The shipping company’s operational efficiency is being aided by investments in digitalization and innovative technologies.

Shareholder-Friendly Approach: ZIM’s shareholder-friendly approach throws light on its financial prosperity. The shipping company’s high dividend yield is a huge positive for income-seeking investors. This highlights confidence in its cash flow and prospects. Sticking to its policy of returning 30% of net income to its shareholders, in third-quarter 2024, ZIM’s board declared a regular dividend of approximately $340 million or $2.81 per ordinary share. In the process, the shipping company’s quarterly dividend tripled quarter over quarter. Additionally, the board declared a special dividend of approximately $100 million, translating into 84 cents per share. The total payout, therefore, comes in at $3.65 per share.

Rosy Earnings Estimate Revision: The Zacks Consensus Estimate for 2025 earnings per share, currently pegged at $3.24 per share, has been revised a massive 543.8% upward over the past 60 days. Such favorable estimate revisions indicate brokers’ confidence in the stock. The positive revision trend reflects confidence in ZIM’s ability to continue delivering strong financial performances.

Impressive Earnings Surprise History: Driven by factors like high revenues and carried volumes, the shipping stock outpaced the Zacks Consensus Estimate for earnings in three of the past four quarters (missing the mark in the other one), with the average beat being 12.6%.

Compelling Stock Valuation: ZIM stock is quite cheap, as its Value Score of A does not suggest a stretched valuation at this moment. In terms of price-to-sales, ZIM is trading at a forward sales multiple of 0.32X, which is not only lower than the industry average but also its 3-year median reading.

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Final Thoughts

The recent decline in ZIM shares due to impending trade tensions is understandable. Despite the short-term troubles, ZIM has a lot working in its favor, as highlighted in the write-up, that position it well to navigate the challenges.

Upward revisions in earnings estimates for 2025 further point to a promising outlook. These strengths make ZIM an attractive choice for investors seeking a solid long-term investment in the shipping industry. The company’s long-term (3-5 years) earnings growth rate is an impressive 26.2%, higher than its industry’s 19.4%

ZIM currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here

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Frontline PLC (FRO) : Free Stock Analysis Report

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