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Wells Fargo says Expeditors has a problem: Its stock is too expensive

With ongoing drop in rates and volumes, Expeditors’ asset-light model is not immune to a downturn, Wall Street firm says

Expeditors International is an asset-light freight forwarder. (Photo: Shutterstock)

There are at least three Wall Street research companies in the last month that have recommended investors underweight shares of Expeditors International, but the market for the company’s stock doesn’t seem to care.

The latest Wall Street firm with that advice is Wells Fargo, which on Tuesday cut its rating on Expeditors (NASDAQ: EXPD) to “underweight,” which is tantamount to a “sell” recommendation. Sell recommendations are estimated by FactSet to historically only be about 6% of all Wall Street ratings.

The Wells Fargo recommendation of underweight joins similar recommendations of Barclays and Morgan Stanley, which Yahoo Finance reports both affirmed an earlier underweight rating in October, and Wolfe Research, which Yahoo Finance said cut its rating on Expeditors to underperform in July.

Wells Fargo said investing in asset-light Expeditors, which describes itself as “offering … a seamless international network of people, and integrated information systems to support the movement and strategic positioning of goods,” should be avoided because the stock is simply too high priced given the outlook for freight markets going into 2023.

Expeditors through trading Tuesday was up 22.78% in the last month, according to Barchart. Its three-month performance showed an increase of 6.57%. For the year, Expeditors stock has declined 12.25%. 

That eye-popping increase in the last month is what brought Wells Fargo to take the action it did. It wasn’t even a full month that appeared to concern Wells Fargo (NYSE: WSC). The Wall Street firm cited movement in just the past week, when Expeditors dropped below $107 per share on Thursday only to close Tuesday at $114.12. Its 52-week high is $137.80, recorded just before Christmas last year.


The news of the Wells Fargo action had no discernible effect on the price Tuesday. Its increase was 0.5% for the day, and it continued to rise post-market. However, that was less than the 1.36% gain recorded in the S&P 500 Tuesday.

Wells Fargo’s reasons for its move on Expeditors boiled down to its observation that a company tied so much to world freight markets was not likely to continue roaring along at the rate of growth its stock has shown in the last four weeks. And it’s not as if the slowdown hasn’t already been reported in data from Expeditors. In the company’s third-quarter earnings release, Expeditors reported that for the three months ended Sept. 30, its airfreight volume was down 13% from the corresponding quarter a year earlier, and its ocean freight volume dropped 10%.

Expeditors management does not hold a conference call with analysts. But in the statement released in conjunction with the earnings, CFO Bradley Powell said: “We now believe we are seeing a shift towards slowing volumes and falling rates. We have been here before and know which levers to pull to enhance our efficiencies and control costs. We are ready to further align ourselves with a post-COVID environment of higher inflation and tapered demand.”

The transportation team at Wells Fargo agreed with the downturn forecast. Expeditors is “a solid operator,” Wells Fargo said, but that won’t be enough to maintain its profitability given that “the unique supply chain dynamics were a clear driver of the outsized earnings performance this cycle.”

In its latest quarterly report, Expeditors posted earnings per share of $2.56 versus $2.12 a year earlier. For the nine months, it recorded $6.90 in earnings compared to $5.68 last year.

“Earnings are coming down,” Wells Fargo said. “There does not appear to be much debate around that. However, how much they could fall is an entirely different story.”

Earnings in the fourth quarter will likely mark “the start of a pullback” at Expeditors, Wells Fargo said. “As such, given the magnitude of the increases over the COVID-inducted super-cycle, we believe it will take some time to rightsize their operations once again, pressuring earnings in fiscal 2023 and likely accelerating into fiscal 2024.”

Wells Fargo’s estimates are that Expeditors will make $5.20 in 2023, a drop from its earlier estimate of $5.55. Wells Fargo is holding to a price target of $95 for EXPD, given its estimate that the stock should trade at an 18x multiple. With the stock up now at $114, that difference is clearly the basis for the underweight rating. 

Noted by Wells Fargo report was a trend that was clear in the most recent Expeditors quarterly report: steady revenues even as volumes were declining. In the third quarter, even with the steep drop in volumes, Expeditors was positively impacted by higher rates and its revenues rose 1% year on year. 

Expeditors, Wells Fargo said, has benefited greatly from supply chain problems, but “what goes up must ultimately come down.”

“Managing the overall falloff while maintaining good standing with customers could prove to be difficult,” Wells Fargo said. “As such, we believe there could be a slight overcorrection in the near term, at least until they can rightsize both their costs and capacity.”

Expeditors already has begun to see a tightening of some costs. In the third quarter, Expeditors said it had spent $640.95 million on the line item of “salaries and other expenses.” That was down from $644.13 million a year earlier and was recorded even as Expeditors reported its headcount rose to 20,269 from 19,034 a year earlier.

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John Kingston

John has an almost 40-year career covering commodities, most of the time at S&P Global Platts. He created the Dated Brent benchmark, now the world’s most important crude oil marker. He was Director of Oil, Director of News, the editor in chief of Platts Oilgram News and the “talking head” for Platts on numerous media outlets, including CNBC, Fox Business and Canada’s BNN. He covered metals before joining Platts and then spent a year running Platts’ metals business as well. He was awarded the International Association of Energy Economics Award for Excellence in Written Journalism in 2015. In 2010, he won two Corporate Achievement Awards from McGraw-Hill, an extremely rare accomplishment, one for steering coverage of the BP Deepwater Horizon disaster and the other for the launch of a public affairs television show, Platts Energy Week.