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On Wednesday, Citi analyst Lu Xu updated the firm’s outlook on ZTO Express (NYSE:ZTO), increasing the price target to $26.40 from the previous $24.20, while reaffirming a Buy rating on the shares. The adjustment follows ZTO Express’s recent earnings results and management discussions. The company, currently valued at $17 billion, has shown strong momentum with an 11% gain in the past week. According to InvestingPro data, ZTO maintains a "GREAT" financial health score of 3.18, supported by robust cash flows and solid balance sheet metrics.
ZTO Express’s commitment to achieving its forecasted 20-24% year-over-year parcel growth for 2025 was highlighted as a key factor in the revised price target. This growth target builds upon the company’s impressive 15.26% revenue growth in the last twelve months. This growth is expected to result in a 0.8-1.5 percentage point expansion in market share. Management has indicated a willingness to accept profit declines as a strategic move to gain market share, provided that competitors are facing more severe financial challenges. The strategy appears sustainable given ZTO’s strong dividend yield of 3.19% and conservative debt-to-equity ratio of 0.28.
The company’s performance in the retail parcel segment was also noted, with a growth to 7 million parcels in the fourth quarter of 2024. Expectations are set for an average daily volume of 8.4 million parcels in 2025, with the goal of reaching approximately 10 million by year-end. Additionally, ZTO Express reported that its reverse parcel volume nearly doubled in 2024.
Efficiency improvements were mentioned, with the unit core cost, which includes transportation and sortation expenses, predicted to be reduced by RMB 3 cents. This projection does not take into account potential savings from a decrease in oil prices.
Furthermore, ZTO Express has a remaining share buyback quota of $700 million. The company may consider requesting an extension of the buyback program from the Board during the next results reporting period. With the stock currently trading at a P/E ratio of 14.71 and showing signs of undervaluation based on InvestingPro’s Fair Value analysis, the timing could be opportune for such actions. For deeper insights into ZTO’s valuation metrics and growth potential, investors can access additional ProTips and comprehensive financial analysis through InvestingPro.
Citi’s new target price of $26.40 is based on applying a 15x price-to-earnings ratio to the company’s estimated earnings for 2025. The firm’s positive view on ZTO Express’s market share expansion strategy and its potential impact on accelerating market consolidation and profitability within the Tongda sector was reaffirmed with the maintenance of the Buy rating. This aligns with the broader analyst consensus, which maintains a strong buy recommendation at 1.48, with price targets ranging from $19.99 to $32.59.
In other recent news, ZTO Express reported fourth-quarter revenue that exceeded expectations, coming in at RMB12.92 billion ($1.77 billion), surpassing analyst estimates of RMB11.71 billion. This marks a 21.7% increase from the same period last year, driven by a notable 11% growth in parcel volume. However, the company’s adjusted earnings per American depositary share fell slightly short of projections, reaching RMB3.24 ($0.44) compared to the expected RMB3.28. ZTO Express’s core express delivery business experienced a 22.4% year-over-year revenue increase, bolstered by higher parcel volumes and improved pricing. The company’s key account revenue surged significantly by 275.9%, reflecting a rise in higher-valued parcels such as e-commerce returns. For the full year 2024, ZTO Express reported a revenue increase of 15.3% to RMB44.28 billion ($6.07 billion), with adjusted net income growing by 12.7% to RMB10.15 billion ($1.39 billion). The company anticipates parcel volume growth of 20% to 24% in 2025. Additionally, ZTO Express declared a semi-annual dividend of $0.35 per American depositary share, equating to a 40% payout ratio.
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