Despite the current market bloodbath, the Zacks Transportation-Services industry continues to benefit from the economic activity-led demand uptick. With life gradually returning to normalcy and people going out for work after being vaccinated to fight the dreaded COVID-19, the demand scenario improved drastically.

Riding on better demand, there has been a substantial surge in manufactured goods so far. This aided growth of players in the industry. Stocks like C.H. Robinson Worldwide CHRW, Matson MATX and Hub Group HUBG are well-positioned to capitalize on this healthy demand environment.

About the Industry

The companies housed in the Zacks Transportation-Services industry offer logistics, leasing and maintenance services to transporters. Some industry players focus on the business of global logistics management, including international freight forwarding. The third-party logistics entities provide innovative supply-chain solutions. They also focus on services like product sourcing, warehousing and freight shipping. The companies have expertise in the fields of trucking, air and ocean transportation. Additionally, some of the players in this industry deliver domestic and international express delivery services. The well-being of the companies in this industrial cohort is directly proportional to the health of the economy. An uptick in manufactured and retail goods, favorable pricing and improvement in global economic conditions bode well for the industry participants.

3 Key Investing Trends to Watch in the Transportation-Services Industry

Freight Demand Remains Strong: Owing to the gradual recovery in economic activities, freight demand continues to be strong despite minor hiccups. This is supporting growth of the transport service providers. The Cass Freight shipments Index improved 5.4% month over month in May. The overall improving trend is evident from the fact that the measure has improved month over month in three (February, March and May) of the five months reported so far this year.

Dividend Hikes Signal Financial Strength: With the resumption of economic activities, many companies including some transport service providers are reactivating their shareholder-friendly measures like increasing their respective dividend payouts, which underline their financial strength and confidence in the business. Evidently, in June, Matson’s board cleared a 3.3% hike in its quarterly dividend, thus taking the total to 31 cents per share. C.H. Robinson had also hiked its quarterly dividend payout late last year.

High Fuel Costs Limit Bottom-Line Growth: The current scenario of rising fuel costs is denting the bottom line of transport service providers. Oil price is moving northward, mainly due to supply concerns triggered by the Russia-Ukraine war. Notably, oil price escalated 33% in first-quarter 2022.

Oil price is likely to continue increasing this year. Per the U.S. Energy Information Administration, the average Brent crude oil spot price will be $108 per barrel in the second half of 2022.

Zacks Industry Rank Indicates Sunny Prospects

The Zacks Transportation - Services industry is a 28-stock group within the broader Zacks Transportation  sector. The industry currently carries a Zacks Industry Rank #60, which places it in the top 24% of 250 plus Zacks industries.

The group’s Zacks Industry Rank, the average of the Zacks Rank of all member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence from this group’s earnings growth potential. The industry’s earnings estimate for 2022 increased 49.8% year over year.

Before we present a few stocks that you may want to add to your portfolio, let’s look at the industry’s recent stock-market performance and its valuation picture.

Industry Lags S&P 500 and Sector

The Zacks Transportation-Services industry has underperformed the Zacks S&P 500 composite and the broader Transportation Sector over the past year.

The industry has declined 19.4% over this period compared with the S&P 500's depreciation of 12.6%. The broader sector has plummeted 17.7% during the same time frame.

One-Year Price Performance

Industry's Current Valuation

On the basis of forward 12-month price-to-sales, a commonly used multiple for valuing the Transportation-services stocks, the industry is currently trading at 1.27X compared with the S&P 500's 3.22X. The value is also lower than the sector's trailing 12-month P/S of 1.6X.

Over the past five years, the industry has traded as high as 2.16X, as low as 1.27X and at the median of 1.75X.

Price-to-Sales Ratio (F12M)

3 Transport Services Stocks to Buy

C.H. Robinson Worldwide, currently carrying a Zacks Rank #2 (Buy), operates as an asset-light logistics player. The improving freight scenario in the United States is aiding this Minnesota-based freight broker. Efforts to control costs also bode well. Measures to reward CHRW's shareholders instill further confidence in the stock.

C.H. Robinson has an impressive earnings track record. The bottom line surpassed the Zacks Consensus Estimate in three of the trailing four quarters (missing the mark in the remaining one), the average surprise being 17.1%. CHRW has witnessed the Zacks Consensus Estimate for 2022 earnings being revised 0.7% upward over the past 60 days.

You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here

Price and Consensus: CHRW

Matson, a Honolulu, Hawaii-based provider of ocean transportation and logistics services, currently carries a Zacks Rank of 2. Over the past 60 days, MATX has seen the Zacks Consensus Estimate for 2022 move 11.2% north.

The stock has gained 15% in a year's time on the back of improved freight demand and cost-management actions. Matson's efforts to reward its shareholders through dividends and buybacks are also very appreciative.

Price and Consensus: MATX

Hub Group: The Oak Brook, IL-based provider of transportation and logistics management solutions currently carries a Zacks Rank of 2. HUBG is being aided by the gradual improvement in freight market conditions. HUBG has an impressive earnings track record. The bottom line surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average being 43.9%.

HUBG's strong customer base and growth by acquisition strategy also bode well. Hub Group acquired Choptank Transport in October 2021, thereby expanding its operations pertaining to supply-chain solutions. The stock has gained 4.9% in a year's time.

Price and Consensus: HUBG

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