STOCK WATCH


Why Expeditors Is a Great Stock

Jeffrey R. Kosnett

Wall Street has this maddening habit of shooting first on what appears to be bad news and then remembering to think. Sometimes, if you watch closely, you can see how that practice creates unexpected opportunities.



There didn't seem much to worry about in the days leading up to Expeditors International's most recent earnings report, issued February 13. The few analysts who follow the company issued only bland forecasts and while the shares dropped almost 2% on the day before the earnings announcement, trading seemed ordinary.

Before the market opened on February 13, Seattle-based Expeditors reported numbers that traders -- I stress the word traders, as distinguished from investors who might actually understand the freight forwarding and logistics business -- immediately concluded were disastrous. Earnings per share missed expectations, as the saying goes, by three cents a share, coming in at 28 cents instead of the 31 cents that analysts, on average, had estimated.

That's all the sellers needed to know. The stock (symbol EXPD) sank like a rock to the bottom of the ocean on opening. It was down 11% before many professional investors put aside their copies of the Wall Street Journal and paid attention to their screens.

As one who follows shipping and transportation stocks, I have long viewed Expeditors as a great company. Its fortunes are tied closely to trade patterns, so naturally a recession in Asia or Europe would be a worry. But the global economy seems to be firing on all cylinders currently, so that concern seems out of place.

Advertisement

So, out of curiosity more than anything (I do not and have never owned EXPD), I eagled the stock all day on the 13th. Down 11%, then 9%, then 8, then 6, 5.... As the day went on, and as the stock market in general rallied, Expeditors acted as if set free like a bird. By the end of the day, the stock finished at $43.58, down all of nine cents. That's breakeven, in my book, and a pretty remarkable recovery from being down more than $5 a share. The day's performance tells me that this is a stock to own for the long run, not sell on one nugget of news.

Expeditors executives don't say much in public, but a couple of weeks earlier, I had a few words with one of its officials, who acknowledged that the company was committed to regularly boosting its dividend and returning excess capital to shareholders. Expeditors is a strong cash generator, helped by a balance sheet free of long-term debt. It's in one of those businesses that Morningstar says has a "wide moat," meaning it is hazardous for competitors to invade and tough to reinvent.

Whether Expeditors is a raging buy at current levels -- the stock closed at $44.10, up 1.19%, on February 14 -- or just a good, solid, dependable growth company, I don't know. It is a rare combination of offense (the stock has produced a ten-year annualized return of 32%) and defense, expressed by a well-below-average beta, a measure that indicates how closely a stock tracks the overall stock market.

I would not use this tale as an excuse to pile into every stock that gets hammered at the outset of trading. Some speculative companies -- think one-product biotech firms -- often deserve to see their shares decimated after they confess to a business setback. But to massacre the shares of a first-rate company on such thin evidence -- when earnings per share aren't even the most accurate assessment of the business's prospects -- is asking for pushback. When a company like Expeditors can win redemption so quickly, it tells me that this is a stock you mess with at your own peril.



Get Stock Watch by e-mail for FREE. Registered users on Kiplinger.com can sign up to receive more than 20 valuable updates. Register Now »


More Sponsored Links


Advertisement

Market Update

Advertisement

Featured Videos From Kiplinger