ZTO Express Lies Low On Multiple Headwinds: Time To Dump?
Zacks Investment Research | May 27, 2019 11:59PM ET
We recently issued an updated research report on ZTO Express (Cayman) (NYSE:ZTO) . The stock has been downgraded to a Zacks Rank #5 (Strong Sell) from a Zacks Rank #3 (Hold). Going by the proven Zacks model, the Sell-rated stocks (#4 or 5) are likely to underperform the broader market over the next one to three months.
Reasons for the Downgrade
High-operating expenses have been hurting the bottom period, total operating expenses at this China-based company surged 49.7% to RMB 499.7 million.
Higher selling, general and administrative (SG&A) expenses induced a rise in the operating expenses. Apart from other factors, increase in salary and accrued bonus escalated SG&A expenses during the reported quarter.
We are also concerned about the company’s gross margin contraction in the first quarter of 2019. The metric declined to 27.5% in the quarter under review from 29.1% a year ago. This downside was due to expansion in parcel volumes and cost productivity gain. In fact, the company delivered lower-than-expected earnings per share in the period under consideration.
Moreover, the company’s business suffers stringent government regulations and strict policies of the Chinese market. Additionally, the domestic express delivery market is highly competitive due to the presence of big players like SF Express and STO Express.
The bearish sentiments revolving around the stock can be further gauged from the Zacks Consensus Estimate being revised 8.3% downward in the last 60 days for current-year earnings. Moreover, shares of this China-based company have declined 8.4% over the past three months against its Zacks Investment Research
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