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 (NYSE:SE). 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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