On Thursday, Citi adjusted the price target for ZTO Express (NYSE: NYSE:ZTO), reducing it slightly to $27.00 from the previous $27.40. Despite this change, the firm maintains a Buy rating on the stock. The revision follows a recent assessment of ZTO Express's financial outlook and market performance.
The reassessment by Citi comes after a detailed review of ZTO Express's results and subsequent discussions. Management at ZTO Express has expressed confidence in achieving their full-year parcel volume growth guidance, anticipating at least an 18% year-over-year increase in the second half of 2024. This growth is expected to be driven by more targeted incentives to franchises.
Citi notes that any potential decline in average selling price (ASP) is likely to be mitigated by the beneficial effects of reverse logistics, which should help balance out the impact of incentives and a lower average weight of parcels. Moreover, the company is on track to meet its cost reduction target of RMB 3 cents for the year, aided by improved utilization rates in the latter half of 2024.
The firm anticipates that ZTO Express will maintain its unit operating profit in the second half of the year while also increasing its market share. However, Citi has slightly adjusted its 2024 non-GAAP estimates down by 0.7%, taking into account a reduced full-year parcel volume growth forecast of 15% year-over-year and a marginally higher ASP assumption.
The new target price of $27 is set at an unchanged 15 times the projected 2024 earnings per share, which is approximately one standard deviation below the average from 2020. Citi also highlights ZTO Express's 3.2% dividend yield and ongoing share buyback as positive factors. ZTO Express is cited as Citi's top pick within the China Logistics sector.
In other recent news, ZTO Express, the express delivery company based in China, reported strong financial performance for the second quarter of 2024.
The company's earnings and revenue results exceeded analysts' estimates, with adjusted earnings per American depositary share (ADS) reaching RMB3.38 ($0.47), surpassing the analyst estimate of RMB3.12. The revenue for this period reached RMB10.73 billion ($1.48 billion), slightly above the consensus estimate of RMB10.67 billion, indicating a 10.1% year-over-year increase.
Alongside these financial results, ZTO Express reported a 10.1% year-over-year increase in parcel volume to 8,452 million parcels, while adjusted net income rose by 10.9% to RMB2.81 billion ($386.1 million). Despite these positive developments, the company's market share saw a slight decrease by 2.0 percentage points to 19.6%.
In response to the company's financial performance, Jefferies, a financial services company, raised their target for ZTO Express to $27, maintaining a Buy rating on the stock. The firm's analysts project ZTO's parcel volume to grow by about 15% year-over-year, with adjusted earnings expected to exceed RMB10 billion.
The management of ZTO Express reaffirmed its commitment to achieving full-year parcel volume growth in the range of 15% to 18% year-over-year.
InvestingPro Insights
Amid the adjustments to ZTO Express's price target and the company's solid financial performance, InvestingPro data provides additional context for investors. ZTO Express holds a market capitalization of approximately $16.85 billion, reflecting its substantial presence in the Air Freight & Logistics industry. The company's price-to-earnings (P/E) ratio stands at 14.4, indicating a valuation that might attract investors looking for reasonable earnings multiples. Moreover, the company's revenue for the last twelve months as of Q2 2024 is reported at $5.56 billion, with a healthy growth rate of 7.57%, reinforcing the positive outlook presented by Citi and Jefferies.
From the perspective of InvestingPro Tips, it's noteworthy that ZTO Express holds more cash than debt on its balance sheet, which may offer a degree of financial stability and flexibility. Additionally, the company has been profitable over the last twelve months and analysts predict it will remain profitable this year, aligning with the positive sentiment from major financial firms. For investors seeking further insights, there are over 8 additional InvestingPro Tips available, which can be explored for a deeper understanding of ZTO Express's financial health and market position.
These insights, coupled with the company's commitment to maintaining dividend payments for seven consecutive years and a dividend yield of 2.9%, might present a compelling case for income-focused investors. The InvestingPro platform provides a comprehensive set of tips and data metrics, including the fair value assessments, to help investors make well-informed decisions.
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