A.P. Møller-Maersk A/S
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has been carting ocean freight for more than 100 years.
Now the Danish company is expanding to include road, rail, and air services that are connected by a high-tech platform with real-time tracking information. The shift could help power Maersk’s shares (ticker: MAERSK.B.Denmark) higher.
Maersk was a big winner in 2021, as world economies ramped up production when pandemic restrictions were lifted. While port congestion caused its third-quarter container volumes to fall 4% compared with the year-ago period, the company mitigated this by hiking freight prices for customers desperate to move goods amid ongoing supply chain snafus.
The Copenhagen-based Maersk is expected to post the biggest annual profit ever by a Danish-listed company when it reports next month. It already raised its earnings and sales targets for 2021.
Maersk has been on the acquisition trail in order to achieve its transformation. In December it announced a deal to buy Hong Kong’s LF Logistics for $3.6 billion. The purchase will bring 223 warehouses in Asia into the fold—a move that helps Maersk expand into transporting goods from ports to warehouses.
Maersk in November also said it agreed to purchase German freight-forwarder Senator International, and is expanding its air freighter fleet. And last year Maersk bought two e-commerce logistics companies in the U.S. and the Netherlands.
The stock has risen 67.2% to 23,700 Danish Krone ($3,632) over the past 12 months. Andy Chu, an analyst at Deutsche Bank, has a 26,400 Krone price target and reiterated a Buy recommendation in a January note. He wrote that the LF Logistics deal makes “total strategic sense and will provide Maersk with significant growth opportunities and in our view will help make the business less volatile longer term.”
Chu estimates annual earnings before interest and tax could now reach US$24 billion for 2021, up from US$3.6 billion in 2020. “Expect strong earnings momentum in the stock as consensus forecasts for 2022 look far too conservative,” he wrote.
He wrote in a December note that the LF Logistics deal “is not blowing away the company’s cash pile. Given the company’s strong free cash flow generation, we would expect more deals.”
Upside from the potential transformation is not the only catalyst for growth. Freight prices could remain at record levels as supply chain issues drag on well into 2022, although prices are likely to fall at some point as the impact of the Omicron variant subsides and the urgency to ship products wanes.
“Right now we still see very strong demand as well as supply chain bottlenecks in Los Angeles and parts of China where we cannot discharge containers as fast as we would like,” CEO Søren Skou said in a statement provided by the company. “So with the visibility that we have right now, we do not expect any drop-off in the first quarter of this year.”
Maersk has a market value of 449.8 billion Krone and employs 95,000 workers. It fetches a multiple of 4.3 times this year’s expected earnings, a 10% discount to its peers.
For the full year 2020, the company posted $3.3 billion in pre-tax profit, up from $967 million the previous year. Revenue at $39.7 billion was fairly flat from the $38.8 billion posted in 2019. For its 2021 revised guidance, Maersk now expects earnings before interest, taxes, depreciation, and amortization of $24 billion, up from a range of $22 billion to $23 billion.
Maersk’s shares could be sailing to new heights.
