ZIM Stock Forecast To Rise By 38.9%

Along with many other shipping and freight companies, ZIM Integrated Shipping Services (NYSE:ZIM) has had a challenging two years as backlogs and high rates persisted.

Despite the company’s challenges, there’s a strong value argument to be made for this transport firm today. So what is the ZIM stock forecast?

Israel’s Shipping Company Is HUGE

ZIM Integrated Shipping is an Israeli container shipping company that operates roughly 150 ships traveling between a variety of international ports.

Much of ZIM’s fleet is chartered, though it does own nine of its own vessels. The company also provides cargo tracking services through its ZIMonitor program.

Source: Unsplash

Why Is ZIM Stock Dropping?

ZIM has fallen off sharply over the past year. In large part, this fact is due to the fundamentals of the shipping business.

Shippers have faced considerable headwinds this year as demand slows and rates fall back to normal levels.

ZIM had also mushroomed to a hefty valuation, prompting a sharp selloff as the market corrected.

Due in large part to these difficulties, ZIM has seen its recent performance soften. In Q4, for instance, the company’s net income was $417 million, down from over $1.7 billion the previous year.

Revenues were down 37 percent from the previous year, while the average freight rate dropped 42 percent. These challenges spurred much of the ZIM selloff and may continue to affect the stock well into 2023.

Why Is ZIM Stock So Cheap?

Even accounting for rocky fundamentals, ZIM appears to have sold off by an unusually large amount. This is undoubtedly due in part to the influence of copious short selling on the stock. Throughout 2022 and early 2023, shorts opened large positions betting on ZIM’s continued selloff.

As of the time of this writing, short positions accounted for roughly 18.5 percent of ZIM’s float. This is down from a high of over 24 percent in Q4, but it’s likely that shorts are still having a considerable impact on the overall price of the stock.

ZIM Stock Dividend

In addition to potentially being undervalued, ZIM may be attractive to investors as a source of dividend income.

Though highly variable based on ZIM’s earnings, the company’s dividend seems to reflect a strong bias on management’s part toward returning cash to shareholders.

In 2022, for example, ZIM paid $27.55 per share. Investors should, however, keep in mind that falling earnings associated with lower rates will almost certainly drive this dividend down in future quarters.

Is ZIM Stock Forecast Gloomy?

In the short run, ZIM’s share prices could continue to struggle. The company’s earnings per share are expected to dip over the next 12 months, falling from ($0.69) to ($0.97).

Long-term, the company’s earnings are forecast to decline drastically as higher oil prices, lower rates and soft demand take their toll. It’s worth noting, though, that ZIM could be primed for a rebound when the global economy returns to higher growth rates and consumer spending rises again.

ZIM and other shipping companies are likely to continue struggling in 2023. Due to heavy inventories at retailers, demand for shipping has remained slower than expected this year. Higher fuel prices have also raised the cost of operating large shipping vessels. As such, the shipping industry could be in for more challenging times over the next year.

Will ZIM Stock Go Up?

There are several indicators that ZIM is currently undervalued. When we ran the numbers on ZIM it had upside to $29.60 based on a discounted cash flow forecast analysis, suggesting as much as 38.9% upside opportunity.

If this is true, there’s a high probability that the stock will rise in the future as the market reprices it at a fairer level.

Among the supporting evidence is that ZIM is priced below its intrinsic value; its price-to-cash-flow ratio of just 0.43. Additionally, the company’s price-to-sales ratio is even lower, coming in at just 0.21.

Although ZIM is expected to see its earnings fall further into negative territory over the coming months, these ratios are enough to make it an attractive value option if and when the company regains profitability.

It’s also important to note that the market may already have partially corrected itself on ZIM. The stock has risen nearly 24 percent YTD, though it did suffer a massive dip earlier in April.

For the moment, ZIM may have reached the end of its current run. Based on its valuation metrics, however, the stock still has a ways to go before it reaches its fair value.

ZIM Stock Price Target

The price targets offered by analysts for ZIM vary wildly, reflecting the broader market’s general lack of consensus on the stock.

Analyst targets range as low as $15 and as high as 27, representing a potential for a nearly 30 percent price movement in either direction.

Is Debt a Concern For This Shipping Company?

ZIM shares many of the shipping industry’s general risks as demand for freight services slumps off. In addition, ZIM carries a debt-to-equity ratio of 0.49 that could potentially hinder its future growth. The company currently has enough of a cushion to cover its obligations, but further borrowing could prove problematic for investors.

ZIM also runs the risk of competitive pressures from larger freight lines. A number of other deep-sea lines compete with ZIM, making it difficult for the company to establish a dominant place in the market.

While this isn’t a serious problem when shipping is in high demand, slower periods like the present can amplify competitive pressures.

Is ZIM Stock a Buy?

Despite likely being undervalued, ZIM is a stock that is probably better to hold or watch than to buy at the moment.

While the stock could rise considerably if it trades closer to a fair value, its recovery could be slow and uneven.

Investors may want to watch for early signs of improvements in the business and the shipping industry as a whole before deciding to buy ZIM.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.