Overcapacity And Margin Compression Will Undermine Global Shipping

Key Takeaways

• Shrinking long-haul shipping demand and persistent overcapacity are undermining core business economics, driving chronic revenue and profit pressures.
  
• Rising costs from decarbonization and regulatory compliance, combined with digital competitors, are eroding margins and constraining future earnings growth.
  
• Operational efficiencies, business diversification, and flexible network capacity support profitability, resilience, and long-term growth, with disciplined capital allocation enhancing financial strength and shareholder value.

Catalysts

Operates as an integrated logistics company in Denmark and internationally.

• Ongoing reshoring and nearshoring of manufacturing, especially in North America and Europe, are expected to reduce global long-haul container volumes, undermining Maersk's core trans-oceanic shipping business and leading to persistent revenue stagnation or decline as demand for global shipping weakens over the next several years.
  
• The proliferation of digital freight platforms and logistics technology is rapidly commoditizing traditional shipping services, eroding Maersk's pricing power and margin resilience as smaller, asset-light entrants and digital-first competitors undercut incumbents on price and efficiency, forcing Maersk into a prolonged period of net margin compression.
  
• Heavy and sustained capital outlays for decarbonization-including green vessel renewals and compliance with environmental regulation-are set to materially increase operating costs without the promise of offsetting pricing premiums, thereby weighing on free cash flow and risking a significant reduction in earnings and return on invested capital.
  
• Industry-wide overcapacity, exacerbated by aggressive new vessel deliveries during prior high-demand cycles and delays in supply adjustments due to Red Sea disruptions, is likely to result in structurally lower vessel utilization rates and a persistent decline in average freight rates, applying chronic downward pressure on revenue and profitability even as Maersk manages operating costs.
  
• The sector's increasing concentration and pricing discipline heighten regulatory scrutiny and expose Maersk to the rising risk of antitrust action, heightened compliance costs, and potential forced divestitures, which could further curtail profit pools and earnings growth over the medium to long term.

A.P. Møller - Mærsk Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on A.P. Møller - Mærsk compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming A.P. Møller - Mærsk's revenue will decrease by 8.3% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 12.6% today to 0.5% in 3 years time.
• The bearish analysts expect earnings to reach $216.9 million (and earnings per share of $12.31) by about July 2028, down from $7.1 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 90.8x on those 2028 earnings, up from 4.4x today. This future PE is greater than the current PE for the GB Shipping industry at 7.4x.
• Analysts expect the number of shares outstanding to decline by 1.65% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.07%, as per the Simply Wall St company report.

A.P. Møller - Mærsk Future Earnings Per Share Growth

Risks

• The company's successful operational improvements, cost management, and growing returns from its Terminals and Logistics & Services segments have led to solid EBITDA, significantly higher net profit, and strong return on invested capital, which may continue to support robust earnings and cash flow in the years to come.
  
• Maersk's expanded and modular Gemini network offers it exceptional flexibility to redeploy capacity, optimize asset utilization, and adapt rapidly to market shocks, which can help protect net margins and safeguard overall profitability in volatile demand environments.
  
• Diversification beyond its Ocean segment, with particular strength and EBIT margin improvements in Terminals and a steadily recovering Logistics & Services business, provides resilience and lowers the company's dependence on trans-oceanic container volumes, likely supporting revenue and margin stability over the long term.
  
• A strong balance sheet with high net cash, disciplined capital allocation, and continued substantial shareholder returns through dividends and share buybacks suggest financial robustness and the ability to invest for growth, all of which can underpin sustained or growing shareholder value.
  
• Global trade flows remain well diversified geographically, with Maersk's relative underexposure to the U.S. market allowing it to capture growth in other regions, such as emerging markets and intra-regional trades, which can result in revenue growth even when some markets face headwinds.

Valuation

• The assumed bearish price target for A.P. Møller - Mærsk is DKK7620.67, which represents two standard deviations below the consensus price target of DKK11063.8. This valuation is based on what can be assumed as the expectations of A.P. Møller - Mærsk's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of DKK13813.85, and the most bearish reporting a price target of just DKK7609.94.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $43.5 billion, earnings will come to $216.9 million, and it would be trading on a PE ratio of 90.8x, assuming you use a discount rate of 6.1%.
  
• Given the current share price of DKK13285.0, the bearish analyst price target of DKK7620.67 is 74.3% lower.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.