Thesis
Matson (NYSE:MATX) is a leading shipping firm. It deals with problems in the transport world. There are economic issues in Hawaii and Alaska. But Matson keeps growing and planning well. It is expanding fast shipping services. It is also boosting its ship fleet size. This helps Matson perform better and remain a key player in ocean transport.
Introduction
Matson, Inc. is a huge shipping company. It ships goods across the Pacific Ocean. It has routes to Hawaii, Alaska, Guam, and China. Matson does not only move containers on ships, it provides logistics services to help businesses. This includes transportation brokerage to move items smoothly. Matson focuses mainly on ocean shipping. But it also has a joint business in port operations. The company is known for fast and reliable shipping services. It is at its best at moving items from China to the United States.
Financial Performance
|
Quarter Ended |
2023-03-31 |
2023-06-30 |
2023-09-30 |
2023-12-31 |
2024-03-31 |
|
Revenue |
704.8 |
773.4 |
827.5 |
788.9 |
722.1 |
|
Revenue Growth (YoY) |
-39.53% |
-38.67% |
-25.77% |
-1.58% |
2.45% |
|
Cost of Revenue |
597.5 |
604.7 |
624.1 |
644.4 |
612.2 |
|
Gross Profit |
107.3 |
168.7 |
203.4 |
144.5 |
109.9 |
|
Selling, General & Admin |
66.8 |
70.6 |
72.6 |
73.3 |
73.4 |
|
Operating Expenses |
68.6 |
72 |
71.3 |
69.2 |
73 |
|
Operating Income |
38.7 |
96.7 |
132.1 |
75.3 |
36.9 |
|
Other Expense / Income |
-10 |
-10.5 |
-10.5 |
-11.4 |
-10.6 |
|
Net Income |
34 |
80.8 |
119.9 |
62.4 |
36.1 |
|
Gross Margin |
15.22% |
21.81% |
24.58% |
18.32% |
15.22% |
|
Operating Margin |
5.49% |
12.50% |
15.96% |
9.54% |
5.11% |
|
Profit Margin |
4.82% |
10.45% |
14.49% |
7.91% |
5.00% |
Source: Seeking Alpha (Retrieved on 07-01-2024). Financials in millions USD.
Matson’s China service saw a 4% drop in volume in Q1 2024. But the company got higher average freight rates. This helped boost their Ocean Transportation segment. Matson’s Q1 2024 revenue was $722.1 million, up 2.45% from last year. Reversing the declining trend seen in previous quarters. Higher China freight rates kept revenue up despite lower volumes. Strategic pricing let Matson earn a $109.9 million gross profits, with a 15.22% gross margin. (Investing.com).
Matson faced lower volumes than last year in Hawaii and Alaska. Hawaii saw a 1.7% drop in container volume. Alaska’s volume went down by 5.1%, mainly due to one less northbound sailing. The lower demand in Hawaii links to tourism still recovering after last year’s wildfires. But Matson controlled costs well. The cost of revenue for Q1 2024 was $612.2 million, a bit less than the last quarter. The Q1 2024 operating income stood at $36.9 million. And the net income was $36.1 million. This shows strength in finances despite challenges. The Q1 2024 profit margin was 5.00%. It’s down from the previous quarter but stable compared to past performance. (Investing.com).
Opportunities
Matson pays attention to boosting demand for its CLX and MAX services. CLX is the China-Long Beach Express. MAX is the Matson Alaska Express. The company expects higher rates and better volumes for these fast services. This growth seems good because it lets Matson charge premium prices for quicker, reliable shipping. This directly leads to more revenue. Plus, keeping high service standards helps keep current customers happy. It may also bring in new customers, like e-commerce firms. These businesses value speed and reliability (Investing.com).
Matson expands their operations. They build new ships called Aloha Class. This increases their capacity and service quality. With more vessels, they can meet rising demand. Expanded fleet reduces delays, boosts efficiency and profits. New ships give Matson a competitive edge too. They can attract more customers by offering reliable service (Investing.com).
Challenges
Matson faces a big problem: low demand for shipping services in its Logistics unit. Though Ocean Transportation does well, Logistics income drops due to less demand. This issue will likely continue until 2024, affecting overall Logistics profits. Lower shipments and tough competition make logistics margins small. So, matching past income levels is hard (MATSON) (Stock Market News Live | Stock Titan).
An issue is economic uncertainty in key Hawaii and Alaska markets. Hawaii had a 1.7% yearly drop in container volumes in Q1 2024 due to lower overall demand. Modest growth is expected because of low unemployment and rising construction. But recovery in tourism, hit by wildfires, is slow. Alaska also saw a 5.1% yearly container volume decline due to fewer sailings and weakened demand. This is why I see that these conditions could make it hard for Matson to maintain or grow market share and revenues in these regions (Stock Market News Live | Stock Titan).
Valuation
|
Gross Margin |
PS ratio TTM |
PE Ratio TTM |
Growth revenue |
Growth EPS |
Revenue growth forward (analysts estimate) |
Earnings growth forward (analysts estimate) |
|
|
Matson |
20.13% |
1.47 |
15.46 |
-19.84% |
-57.49% |
-8.67% |
-30.78% |
|
Sector |
30.81% |
4.89 |
23.05 |
4.98% |
9.08% |
6.25% |
8.93% |
Source: Seeking Alpha. Data retrieved on 07-01-2024.
Matson has a small profit margin of 20.13%. This number is much lower than 30.81% which is seen often in the industry. It means Matson spends more to make money compared to its revenue. The ratio of Matson’s price to sales is 1.47 which is something that is seen often in the industry, that the ratio is lower than 4.89. The market values Matson’s sales less favorably than average companies. Matson’s price-to-earnings ratio is 15.46, below 23.05 for the industry median. This shows investors place a lower value on Matson’s earnings.
Matson is confronted with a softness in the transportation brokerage market. Not only that, but also because of a shaky economy in Hawaii and Alaska. However, there still are ways for the company to thrive through opportunities like the increase in the demand for CLX and MAX services and the strategic prevalent of the company. Forecast of the realistic revenue growth might be in the region of 2-3%. This is consistent with a positive but prudent perspective. Earnings growth estimation could be corrected to approximately 5-6%. This will be the result of operational efficiencies and higher freight rates, even with competitive pressures. Transmitting these revised growth rates, the P/E ratio of Matson can be altered to about 18-20. The resulting case may impose relatively small improvement in profitability. The P/S ratio can increase slightly to around 2-2.5. This constitutes a heightened revenue outlook versus the historical performance, in addition to the comparison of the industry to the company’s prospects.
Conclusion
I feel neutral about Matson. The firm encounters big hurdles. Examples are things such as a weak transportation market and economic doubts in Hawaii and Alaska, which may affect profits. Yet, chances exist, such as rising demand for expedited services and strategic growth, which offer potential upsides. Adjusted estimates hint that while improvements are possible, the current market value reflects a cautious but steady view.
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