Get on Board with Expeditors

Shipping and logistics company Expeditors International of Washington has been a marvelous growth stock for so long it's odd to watch its shares flounder. The stock (symbol EXPD) closed at $41.84 on March 5, not far above its 18-month low and well below its 52-week high of $53.34 reached in November 2007.

This stock still is worth considering if you're searching for a mid-sized global growth company because Expeditors is gaining market share and analysts expect excellent earnings growth.

Expeditors shares sank 8% after the company, on February 12, reported earnings per share that missed analysts' expectations. In the fourth quarter of 2007, Expeditors earned $70 million, or 32 cents a share, up from $62 million, or 28 cents a share, a year earlier. Analysts, on average, expected earnings of 34 cents a share. The explanation for the slower-than-expected growth: high fuel costs and tighter profit margins on air freight shipments.

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Expeditors remains an excellent company in a vital and growing segment of the shipping business. It buys air and sea cargo space and insures and stores the raw materials, apparel, drugs and countless other items that go from factory to warehouse to buyer. It also produces software for the global logistics industry.

Expeditors is especially well known for its strong position in Asian trade. Almost half of its operating income of $423.4 million in 2007 resulted from business in the Far East.

That's one reason analysts are still solidly behind the company. Mike Roarke, an analyst at McAdams Wright Ragen, a brokerage firm in Expeditors' hometown of Seattle, cited the company's Chinese connections when he upgraded the stock to "buy" in February, with a price target of $50 per share.

UBS analyst Rick Paterson also upgraded EXPD to "buy" on March 3, saying in a report that market share gains should keep earnings per share growth healthy, unless the world economy turns into a disaster.

And on February 13, Expeditors director Michael Malone bought 20,000 shares at $40, a heavy bet from the inside on a recovery.

Expeditors does have a strong balance sheet, with $575 million in cash, or $2.70 per share, and no long-term debt. And it's reassuring that orders and revenue were healthy in the fourth quarter although the earnings weren't robust. "All the miss (on earnings) was related to higher costs, as gross and net revenue were generally in line (with expectations)," Edward Wolfe of Bear Sterns said in a research note.

Even some investors who sold the stock recently have good things to say about the company. J. Bary Morgan, manager of Baird LargeCap and MidCap funds, unloaded it last December at $45 as part of an overall plan to make the funds less sensitive to a slower economy. Morgan says he continues to monitor Expeditors and calls it a company "we want to own" when the economy expands again.

Don't expect Expeditors to cut costs and shrink its way to prosperity. At Expeditors' Seattle headquarters, the word "recession" is banned by order of chief executive Peter Rose, a blunt, hard-driven man from Montreal who never completed high school. Rose started his career on the Canadian Pacific railroad while a teenager and worked his way up in the transportation industry. In 1981, Rose and several partners started Expeditors, which has grown to employ 11,000 people at 230 locations on six continents.

Rose says he wants Expeditors to generate earnings growth of 15% to 20% annually -- a goal analysts say is realistic, at least through 2013. (The company's earnings per share has grown, on average, 21% each year for the past ten years.) The stock trades at 29 times the $1.44 per share analysts expect the company to earn in 2008. Expeditors's price-earnings ratio usually is around 35.

Rose has said Expeditors is the only stock he owns. Talk about placing all your eggs in one shipping container.