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On Monday, Morgan Stanley (NYSE:MS) reaffirmed its positive stance on ZTO Express (NYSE:ZTO), a leading express delivery company, maintaining an Overweight rating and a $26.00 price target. The firm’s analysts predict a rise in the company’s share price over the next 60 days, suggesting that concerns about earnings being impacted by competition have already been factored into the current stock price. Trading at a P/E ratio of 13.6, ZTO appears attractively valued, with InvestingPro analysis indicating the stock is currently undervalued. The company’s strong financial metrics, including a healthy gross profit margin of 31%, support Morgan Stanley’s bullish outlook.
The analysts at Morgan Stanley highlight the potential for ZTO Express to boost its shareholder returns in the first half of 2025 through an increase in share repurchase activities. They believe that if the company resumes buying back shares, it could serve as a significant catalyst for the stock price. The firm assigns a 70% to 80% probability to this scenario, indicating a strong expectation that ZTO Express will indeed step up its share repurchases. InvestingPro data reveals ZTO holds more cash than debt on its balance sheet, with robust cash flows sufficient to cover interest payments, positioning the company well for potential share buybacks.
According to Morgan Stanley, the likelihood of ZTO Express accelerating its share buyback program is very high, which could lead to a reassessment of the company’s shareholder return prospects for 2025. This anticipated move is viewed as a strategic effort to enhance shareholder value and could positively influence market perceptions.
The Morgan Stanley team’s assessment is based on a subjective estimation of the likelihood of the scenario unfolding as predicted. They emphasize that the assigned probabilities are illustrative and reflect their judgment of the potential for the company to implement the share repurchases as anticipated.
ZTO Express, which is listed on the New York Stock Exchange, is being closely watched by investors as the company navigates the competitive landscape of the express delivery sector. Morgan Stanley’s reiteration of its Overweight rating and price target suggests confidence in the company’s ability to perform well despite market challenges.
In other recent news, ZTO Express reported impressive fourth-quarter revenue of RMB12.92 billion ($1.77 billion), surpassing analyst estimates of RMB11.71 billion, marking a 21.7% increase from the previous year. Despite this revenue growth, adjusted earnings per American depositary share were slightly below expectations at RMB3.24 ($0.44). For the full year 2024, the company achieved a revenue of RMB44.28 billion ($6.07 billion), up 15.3% year-over-year, with adjusted net income growing by 12.7% to RMB10.15 billion ($1.39 billion). In light of these results, Citi increased its price target for ZTO Express to $26.40, maintaining a Buy rating, citing the company’s parcel growth and market share expansion strategies. Meanwhile, Jefferies adjusted its price target to $24.00 but also upheld a Buy rating, emphasizing ZTO’s focus on market share and reverse logistics growth. Conversely, JPMorgan downgraded ZTO Express from Overweight to Neutral, lowering the price target to $23, expressing concerns about potential margin dilution due to the company’s strategic pivot towards volume growth. Despite the downgrade, JPMorgan acknowledged ZTO’s shareholder value commitment through share repurchases and dividends. ZTO Express’s management anticipates parcel volume growth of 20-24% year-over-year in 2025, with the company declaring a semi-annual dividend of $0.35 per ADS.
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