ZIM Integrated Shipping Services (NYSE: ZIM) is an Israeli cargo transportation firm that’s taken a very heavy hit on the chin in recent quarters. At its worst, shares of ZIM lost around 67% of their value (after factoring in dividends), exceeding the damage done to other logistics firms out there. At writing, the stock is still down significantly from its high of around $91 and change. With a triple-digit dividend yield (117%) and an absurdly-low price-to-earnings (P/E) multiple (0.4x at the time of writing), many new investors may view ZIM stock as some sort of deep-value play. It may very well be. Still, considerable risks exist as analysts look to continue lowering the bar on their price targets.
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Though ZIM can turn things around in the new year, investors should not get their hopes up with the expectation that the stretched dividend will survive as an economic downturn weighs heavily on international shipping. Indeed, if a dividend yield looks too good to be true, there is probably a good chance that it is.
As such, investors looking at the name should not chase shares of ZIM solely for the dividend payout or the rock-bottom P/E multiple. That’s not to say ZIM stock is a value trap, though. The stock has been beaten down, and a lot of the recession jitters have already been factored in at this point.
For now, I am neutral on shares of ZIM. Though I do find rock-bottom valuation metrics (shares trade at 0.4x earnings, 0.6x book, and 0.2x sales) enticing. Even in the face of an economic hurricane, negative growth expectations have already taken such a toll on the shares!
ZIM Stock: Weighing the Risks with the Potential Rewards
ZIM has a bit of baggage alongside most other cargo shippers these days. So, investors must weigh the risks with potential rewards (potential recovery gains).
Undoubtedly, the economic climate could go from bad to worse as the Federal Reserve continues driving interest rates higher, increasing the odds of a landing that’s less than soft. The magnitude of macro pressures is considerable as we move into a recession year.
With so much damage already in the stock and the grim expectation that revenues will fall off by around 32% going into a recession year, a strong case could be made for ZIM pole-vaulting over analyst estimates in 2023.
Third-quarter earnings are on tap for November 16. With another wave of analyst price target downgrades in the books, expectations are looking pretty muted, with the consensus calling for $9.54 in quarterly per-share earnings on $3.2 billion in revenue, a drastic decline from the $9.54 EPS and $3.4 billion revenue posted a quarter prior.
Indeed, the crash in the stock has created a pretty fresh slate to build upon, with the hype from the pandemic-era shipments surge all but gone. Now, it’s up to management to steer the ship in the right direction.
Whether the gigantic dividend lasts longer than the bearish skeptics think, ZIM stock seems like an intriguing deep-value option for brave young investors who wouldn’t mind taking on a high degree of risk for a shot at outsized rewards.
Is ZIM Stock a Buy, According to Analysts?
Turning to Wall Street, ZIM stock comes in as a Moderate Buy. Out of six analyst ratings, there are five Holds and one Sell. The average ZIM Integrated Shipping Services price target is $31.12, implying upside potential of 32.5%. Analyst price targets range from a low of $21.00 per share to a high of $63.00 per share. Analysts seem to be taking on a “wait-and-see” approach.
The Bottom Line on ZIM Stock
For now, I think it’s a good idea to look past the rock-bottom P/E ratio and sky-high dividend yield to the potential damage that a recession could bring. After all, it’s never a good idea to blindly chase a stock for any single metric with little to no effort put into analyzing the fundamentals.
Wall Street analysts are not chasing the name as we enter a potential recession storm expected to weigh heavily on the top-line results. However, its two hot metrics (dividend yield and P/E ratio) are sure to draw in many dip-buyers in a market environment that seems rich with potential deep-value bargains.
Up ahead, earnings will experience a bit more pressure as macro headwinds pick up. The real question that should be on investors’ minds is whether ZIM can ride out increasingly choppy waters as we head into 2023. There’s a good chance it can.
