Updated on May 4th, 2021 by Bob Ciura
Expeditors International of Washington Inc. (EXPD) may not be the best known stock to most investors given that it services a logistics and transportation niche in global commerce. However, the company has a terrific track record creating value for shareholders, both via appreciation in the share price, and by increasing its dividend payment.
2019 marked the 25th consecutive year Expeditors increased its payout, making it a member of the prestigious 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 important metrics such as dividend yields and P/E ratios, by clicking the link below:
Expeditors has proven over time to be a business with strong growth prospects, although that growth hasn’t been linear by any means. The cyclical nature of the shipping business creates inherent volatility, but over time, Expeditors has delivered 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 this particular Dividend Aristocrat.
Expeditors is a global logistics company that offers services including consolidation and forwarding of air and ocean freight, customs brokerage, vendor consolidation, cargo insurance, time-sensitive delivery options, order management, warehousing and distribution, and other customized logistics solutions. In short, Expeditors offers companies global commerce logistics solutions in all shapes and sizes.
Expeditors was founded in 1979 in Seattle and since that time, it has grown from a single office into more than 300 locations across six continents, spanning more than 100 countries and employing more than 17,000 people.
EXPD is a large-cap stock with a market cap above $19 billion.
The company is fairly well diversified with its revenue streams, as we can see below:
Source: 2020 Annual Report
Expeditors has seen its shares move steadily higher in recent years, meaning the company’s market capitalization is still near $19 billion.
The company performed well in 2020, despite the coronavirus pandemic sending the U.S. economy into recession. In 2020, net income rose 18% while earnings-per-share increased 20% to $4.07. The company continued to perform well in the 2021 first quarter, as revenue and earnings-per-share increased 77% and 135%, respectively.
Over the past 10 years, the company has seen earnings grow at a compound annual growth rate (CAGR) of 9.6%. It has increased slightly to 12.4% CAGR for the past five years. We see Expeditors producing annual earnings-per-share growth in the area of 4% thanks mostly to higher revenues.
Expeditors remains well-positioned to continue to see revenue growth over time through its diverse network of revenue streams, but note that recessions, global trade fears, and other shocks pose a risk to growth.
From 2014-2018, the company grew airfreight tonnage, ocean containers, and gross revenue every year. Airfreight tonnage increased 3% in 2018. Tonnage is the preferred volume method Expeditors uses to assess performance, and while growth rates have been volatile, the general direction has been higher in recent years.
Were it not for the trade war, we believe Expeditors would be producing similar growth characteristics for the current fiscal year, and given this, we believe the long-term trend is higher for volumes. This will help drive revenues higher over time, as it has for many years.
Revenue, operating income, and earnings-per-share have moved significantly higher over time, but there have been periods for all categories that showed negative year-over-year growth. Given the inherently volatile nature of the shipping business, we don’t see this as changing, but still expect to see mid-single-digit earnings-per-share growth annually over full economic cycles.
We think revenue will produce the bulk of these gains, while margins will remain generally flat, with a small tailwind from share repurchases. In total, we forecast 4% annual earnings-per-share growth annually.
Competitive Advantages & Recession Performance
Expeditors’ competitive advantage is its size and scale in a niche of global transportation of goods. Expeditors offers customers the scale of a global shipping company with a diverse network of ports and airports, but with the local and customized options of a smaller firm. This sets Expeditors apart from others in the logistics industry, but note that this is an industry where advantages are difficult to come by.
Expeditors’ earnings-per-share during the Great Recession are 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 its earnings decline during the Great Recession, but only slightly. In fact, Expeditors held up much better than one would perhaps think given its leverage to the global economy. The next recession will likely crimp earnings growth temporarily, but will be far from disastrous for Expeditors given its strong track record during the Great Recession, one of the worst economic periods in recent history.
The company continued to perform well in 2020, during another particularly challenging period for the economy. Expeditors remained highly profitable last year, and maintained its impressive streak of annual dividend increases.
Valuation & Expected Returns
While Expeditor’s historical growth and future growth potential are impressive, the stock appears significantly overvalued today. We expect to see $4.24 in earnings-per-share for this fiscal year. With the share price at $114, Expeditors is trading for about 26.8 times earnings.
We see 18 times earnings as fair value for the stock. Therefore, a declining P/E multiple from 26.8 to 18 could reduce annual returns by -7.7% per year over the next five years.
Combining the forecast for 4% earnings-per-share growth, and the current 0.9% dividend yield, we see total annual returns of negative 2.8% over the next five years.
We think Expeditors will also continue to grow its dividend at very strong rates over time, as the company has a track record that is difficult to match. Expeditors’ current yield is below the S&P 500 average and therefore is unattractive for 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 it services, as well as offering customized, valuable services to its global network of customers. Growth will likely continue to be volatile and vulnerable to interruptions, particularly during recessions, but we see Expeditors as attractive for the long-term.
The valuation today is fair, but not cheap, and the yield is quite low at just 0.9%. However, dividend growth should continue for many years to come given the payout ratio is around 25%.
Expeditors is appealing for dividend growth investors, but not those seeking a high dividend stock, or earnings safety and consistency. Overall, the stock is somewhat attractive today given its valuation against historical norms, as well as earnings growth projections.