SA's Honeywill: Expeditors International Of Washington – great company, shares too pricey

SEEKING ALPHA‘s Robert Honeywill, whose work is always well worth a read, writes:

– Expeditors has solid earnings and strong balance sheet, with no debt.

– The share price appears to have gotten ahead of itself, leading to excellent double-digit returns for most investors over the last six years.

– EPS growth rate, over the next few years, is expected to be lower than historical growth from 2016 to 2019.

– The high current P/E multiple poses a very real risk of multiple contraction leading to negative returns for an investment at current share price levels.

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Investment Thesis

I have to ask myself, what is there not to like about Expeditors International of Washington, Inc. (EXPD)? The company grew EPS by an average 12.8% for the three years ended December 2019. Based on SA analysts’ consensus estimates, EPS is projected to grow by 7.3% average per year from 2019 to 2022. The company has no debt, and a cash balance of $1,466 million at end of Q3 2020. Shareholders investing in the company over the last six years have mostly achieved double-digit returns. And therein lies the problem for an investment in Expeditors shares at current share price levels.

Those double-digit returns are due in part to the share price getting ahead of itself. Current P/E multiple of ~26.3 is well above the historical level of ~22 to 23, despite lower EPS growth expectations than in the past. For an investor buying at current share price levels, there is a very real danger of multiple contraction, leading to negative returns. So, now is likely not a good point in time to buy shares in Expeditors. For existing shareholders, a commenter on a recent article raised the “coffee can” approach to investing, which basically involves buying stocks at attractive price levels, and ignoring subsequent sell signals. Given that everything about Expeditors looks right at present, bar the share price, the “coffee can” approach could be appropriate for existing shareholders.

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Now read this: “Expeditors Q4 2020 earnings preview“.