On Tuesday, BofA Securities updated its assessment of ZIM Integrated Shipping Services (NYSE:ZIM), reducing the price target to $7.80 from the previous $11.00, while keeping an Underperform rating on the stock.
The adjustment follows ZIM's release of its 2024 financial guidance, which anticipates an adjusted EBITDA between $850 million and $1.45 billion and an adjusted EBIT ranging from -$300 million to $300 million.
The company expects to see benefits in the first quarter and possibly the second quarter due to higher spot rates resulting from disruptions in the Red Sea. However, ZIM also forecasts weaker rates in the second half of the year due to an oversupply in the industry as new vessels are delivered.
Analysts project a significant increase in ZIM's realized freight rates by approximately 45% sequentially in the first quarter of 2024, with a decline anticipated for the remainder of the year.
During the earnings call, ZIM's CFO highlighted that the company expects a double-digit increase in volumes for 2024 as it adds larger vessels to its fleet, with estimates around 10%. In response to these projections, BofA Securities has increased its 2024 EBITDA estimate by 6% to $1.187 billion, aligning closely with the midpoint of ZIM's guidance due to higher volume expectations and lower estimated bunker costs.
However, the firm's 2024 EBIT estimate has been lowered to $39 million due to anticipated higher depreciation costs, which also places it near the midpoint of ZIM's newly issued guidance.
The price objective has been revised down to $7.80, as the target price-to-book (P/B) multiple was adjusted to 0.40x, a decrease from the previous 0.55x. This new P/B ratio is at the lower end of the company's historical range of 0.3x to 2.5x. The Underperform rating suggests that BofA Securities continues to have a cautious outlook on the stock’s future performance.
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