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On Thursday, JPMorgan analyst Lin Chen upgraded ZTO Express (NYSE: NYSE:ZTO) stock rating from Neutral to Overweight, despite lowering the price target to $21.00 from the previous $23.00. The adjustment comes following ZTO’s participation in the Global China Summit last week, where the company was presented alongside other industry players such as J&T Express and Yunda.
Chen’s analysis indicates that the intense competition within the industry is likely to lead to consolidation in the second half of 2025. ZTO Express, being a leading company in the sector, is expected to remain resilient and potentially benefit from this consolidation, particularly through its efforts to reduce costs. The company’s strong position is reflected in its impressive 14.76% revenue growth and healthy gross profit margin of 29.65%.
The analyst also noted the upcoming inclusion of ZTO Express (2057 HK) in the Hang Seng Index as a blue-chip stock, which will be effective after the market closes on June 6, 2025. This inclusion is anticipated to enhance liquidity and positively affect investor sentiment towards the company.
Despite the industry’s average selling price (ASP) having decreased by approximately 9% year-over-year to date, which puts significant pressure on the lower-tier Tongda players, ZTO is seen to have an advantage. Chen suggests that if pricing were to decline by an additional 3-5%, some companies might face loss-making scenarios due to their limited capacity for cost reduction, unlike Tier 1 players like ZTO. InvestingPro analysis shows the company holds more cash than debt on its balance sheet, providing crucial financial flexibility during industry consolidation.
The forecast for ZTO’s non-GAAP profit projections for the fiscal year 2025 has been reduced by 12% by JPMorgan. However, profits are expected to rebound, with an estimated compound annual growth rate (CAGR) of around 15% during 2026-2027. Currently, ZTO’s stock is trading at approximately 9.5 times the projected earnings (P/E) for FY26, which is below its historical standard deviation multiple level. InvestingPro’s Fair Value analysis suggests the stock is currently undervalued, with eight additional exclusive insights available to subscribers. The upgrade to Overweight reflects the improved risk-reward profile for ZTO Express, as per JPMorgan’s analysis.
In other recent news, ZTO Express reported its first-quarter 2025 financial results, which did not meet analyst expectations. The company posted adjusted earnings per share of RMB2.71 ($0.37), falling short of the consensus estimate of RMB2.93. Revenue increased by 9.4% year-over-year to RMB10.89 billion ($1.50 billion), but this was below the projected RMB11.68 billion. Despite the earnings miss, ZTO Express’s adjusted net income rose by 1.6% to RMB2.26 billion ($311.3 million). In the face of intense competition in China’s express delivery market, the company maintained its full-year parcel volume guidance.
In related developments, BofA Securities downgraded ZTO Express’s stock rating from ’Buy’ to ’Neutral’ and lowered the price target from $24.00 to $19.00, reflecting a cautious outlook on the company’s financial performance. Jefferies also adjusted its price target for ZTO Express to $21.00, down from $24.00, while maintaining a Buy rating, citing the company’s operational initiatives and growth prospects. Meanwhile, Alibaba (NYSE:BABA) is considering reducing its stake in ZTO Express, exploring options for a potential sale of bonds exchangeable for shares. These recent developments highlight the dynamic environment in which ZTO Express operates, as it navigates market pressures and strategic decisions.
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