On Wednesday, Goldman Sachs adjusted its outlook on ZTO Express (NYSE: NYSE:ZTO), a prominent player in the logistics sector. The firm reduced the stock's price target to $28.00 from the previous $36.00. Despite the decrease, Goldman Sachs reaffirmed its Buy rating on the company's shares.
The adjustment of the price target comes with Goldman Sachs' expectation of ZTO Express continuing to increase its market share. The firm forecasts a progressive market share gain for ZTO Express, estimating increases of 0.8 percentage points in the fiscal year 2023, 0.3 in 2024, and another 0.8 in 2025. This anticipated gain is seen as a resumption of the company's growth narrative in the competitive logistics market.
Goldman Sachs also highlighted ZTO Express's financial resilience, noting the company's higher profit per parcel compared to its competitors. This advantage is believed to provide ZTO Express with a stronger capacity to withstand industry competition. The financial institution emphasizes that this factor, coupled with the company's market share gains, underpins the positive outlook.
Another significant point raised by Goldman Sachs is the recent inclusion of ZTO Express in the Southbound Connect program, which is expected to potentially increase investment inflows into the company. The Southbound Connect is part of the Stock Connect scheme that links the Hong Kong and Mainland Chinese stock markets, allowing investors in each market to trade shares on the other's exchange via their local brokers.
The new price target of $28.00 for ZTO Express is based on a 10 times multiple of the company's estimated normalized EBITDA for 2024. This valuation is also positioned three standard deviations above the average one-year forward EV/EBITDA ratio for the China Logistics sector, as observed over the past year. Previously, Goldman Sachs had set the target price based on a 13 times multiple of the estimated EV/EBITDA for 2023.
InvestingPro Insights
ZTO Express (NYSE: ZTO) has been the subject of a revised price target by Goldman Sachs, and additional data from InvestingPro provides further context to the company's current financial standing. With a market capitalization of $16.86 billion, ZTO is trading at a P/E ratio of 14.24, indicating that the stock is trading at a low price to earnings multiple relative to its near-term earnings growth. This aligns with the Goldman Sachs' perspective of the company's growth narrative in the competitive logistics market.
InvestingPro data also shows a robust revenue growth of 8.49% over the last twelve months as of Q3 2023, with the company maintaining a strong gross profit margin of 30.01%. This financial resilience is highlighted by Goldman Sachs as a key advantage for ZTO Express in its ability to withstand industry competition and continue gaining market share.
Moreover, the company has demonstrated a strong return over the last month, with a 20.4% one-month price total return, which may interest investors looking for short-term gains. This performance is noteworthy considering the volatility of the market and the company's ability to move in the opposite direction of market trends, as noted in one of the InvestingPro Tips. Additionally, ZTO has maintained dividend payments for six consecutive years, with a significant dividend growth of 50.0% over the last twelve months, which could appeal to income-focused investors.
For readers looking to delve deeper into the financial metrics and strategic positioning of ZTO Express, there are additional InvestingPro Tips available, including insights on the company's cash flow, debt level, and profitability projections. To access these insights and more, visit the dedicated InvestingPro page for ZTO Express at https://www.investing.com/pro/ZTO. Plus, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. With a total of 11 InvestingPro Tips listed on the site, investors can gain a comprehensive understanding of ZTO's investment potential.
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