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4 Stocks to Buy From the Recovering Transport Equipment & Leasing Industry
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With continued recovery in the economy amid ramped-up vaccinations in the United States, the Zacks Transportation - Equipment and Leasing industry is benefiting from an uptick in business volumes. Despite lingering coronavirus-related headwinds, the industry is likely to gain from government stimulus efforts, low interest rates and pent-up demand, which is expected to boost consumer spending in the near term.
Transport equipment and leasing companies like Herc Holdings (HRI - Free Report) , Textainer Group Holdings Limited , Triton International Limited and CAI International seem poised to take advantage of this encouraging scenario.
About the Industry
The Zacks Transportation - Equipment and Leasing industry consists of companies offering equipment financing as well as leasing and supply chain management services. The industry includes aircraft, railcar and intermodal container lessors. Some of these companies even provide transportation solutions, such as vehicles, drivers, management and administrative services. Most industry participants offer fleet management solutions.
A prominent industry player is Wabtec Corporation (WAB - Free Report) , which is a provider of locomotives, value-added, technology-based equipment, systems and services to the freight rail and passenger transit industries across the globe.
3 Trends Shaping the Future of the Transport Equipment and Leasing Industry
Improving Business Volumes: With an uptick in economic activities, thanks to easing coronavirus-led restrictions and increasing vaccinations in the United States, the transport equipment and leasing companies are seeing improvement in business volumes. Evidently, Triton International’s bottom line surged more than 100% year over year in the first quarter due to strong trade volumes and container demand. Amid lingering uncertainty over an uneven global economic recovery, the industry stands to benefit from the anticipated increase in capital spending in the near term on the back of government stimulus efforts and pent-up demand.
Low Interest Rates: In April, the Federal Reserve announced its decision to keep interest rates near zero amid an “uneven” economic recovery. Low interest rates provide an incentive to businesses to borrow and invest, which boost the industry’s prospects at least in the near term.
Cost-Control Measures: Amid coronavirus-related uncertainties, the industry participants’ cost-cutting measures are encouraging. Through consistent measures, Ryder System (R - Free Report) generated annualized savings of $50 million from its multi-year maintenance cost-savings initiative. The company expects to generate additional savings of $30 million in 2021. Meanwhile, Trinity Industries (TRN - Free Report) is working toward rightsizing its operations, and lower variable and indirect costs. To this end, the company is reducing its manufacturing workforce strength to align production capacity with demand. Reduced costs should continue to support the bottom line of transport equipment and leasing companies.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Transportation - Equipment and Leasing industry, housed within the broader Transportation sector, currently carries a Zacks Industry Rank #122. This rank places it in the top 49% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates encouraging near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. The industry’s earnings estimate for 2021 has been revised 40.6% upward over the past year.
Given the bullish near-term prospects of the industry, we will present a few stocks that you may want to consider for your portfolio. But it’s worth taking a look at the industry’s shareholder returns and its current valuation first.
Industry Outperforms Sector & S&P 500
The Zacks Transportation - Equipment and Leasing industry has outperformed both the broader Transportation sector and the Zacks S&P 500 composite index over the past year.
Over this period, the industry has rallied 81.5% compared with the broader sector and S&P 500 Index’s increase of 54.8% and 41.8%, respectively.
One-Year Price Performance
Industry’s Current Valuation
On the basis of forward P/E (F12M), which is a commonly used multiple for valuing equipment and leasing stocks, the industry is currently trading at 15.03X, compared with the S&P 500’s 21.61X. It is also below the sector’s P/E (F12) ratio of 25.16X.
Over the past five years, the industry has traded as high as 16.77X, as low as 8.7X and at the median of 14.05X as the chart below shows.
Forward Price/Earnings (F12M) Ratio
Forward Price/Earnings (F12M) Ratio
4 Transport Equipment & Leasing Stocks to Buy
Herc Holdings: Through its subsidiary Herc Rentals, this company provides equipment rental services primarily in North America. Increasing demand for rental equipment should drive the company’s top line. Additionally, the company’s cost-control measures and improved operating efficiency are encouraging.
The Zacks Consensus Estimate for Herc Holdings’ 2021 earnings has been revised northward by 36.6% in the past 60 days. Shares of this Zacks Rank #1 (Strong Buy) company have gained more than 300% in a year’s time. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: HRI
Textainer Group Holdings Limited: Based in Hamilton, Bermuda, this is a leading intermodal container lessor. The company is benefiting from improving market conditions such as increased trade volumes and container demand. It expects substantial revenue growth on the back of the hefty investments it has made in new containers to support the uptick in demand.
The Zacks Consensus Estimate for Textainer Group’s 2021 earnings has been revised upward by 27.7% in the past 60 days. Shares of this Zacks Rank #1 company have rallied more than 200% in a year’s time.
Price and Consensus: TGH
Triton International Limited: This is also an intermodal container lessor based in Hamilton, Bermuda. The company also focuses on leasing chassis, which are used for transporting containers. Gradual increase in trade volumes and container demand bode well for the company. With easing coronavirus-led restrictions in the United States and parts of Europe, the company has been seeing continued recovery in its business over the past few quarters.
The Zacks Consensus Estimate for Triton International’s 2021 earnings has been revised upward by 17.3% in the past 60 days. Shares of this Zacks Rank #2 (Buy) company have surged more than 73% in a year’s time.
Price and Consensus: TRTN
CAI International: This is a transportation company offering intermodal container and rail leasing as well as global logistics services. The company is expected to continue to benefit from strong demand in the container market as the economy improves further on wider vaccine distributions. Higher fleet utilization and healthy resale market conditions are other growth drivers for the company.
The Zacks Consensus Estimate for CAI International’s 2021 earnings has been revised upward by 13.8% in the past 60 days. Shares of this Zacks Rank #2 company have soared more than 100% over the past year.
Price and Consensus: CAI
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4 Stocks to Buy From the Recovering Transport Equipment & Leasing Industry
With continued recovery in the economy amid ramped-up vaccinations in the United States, the Zacks Transportation - Equipment and Leasing industry is benefiting from an uptick in business volumes. Despite lingering coronavirus-related headwinds, the industry is likely to gain from government stimulus efforts, low interest rates and pent-up demand, which is expected to boost consumer spending in the near term.
Transport equipment and leasing companies like Herc Holdings (HRI - Free Report) , Textainer Group Holdings Limited , Triton International Limited and CAI International seem poised to take advantage of this encouraging scenario.
About the Industry
The Zacks Transportation - Equipment and Leasing industry consists of companies offering equipment financing as well as leasing and supply chain management services. The industry includes aircraft, railcar and intermodal container lessors. Some of these companies even provide transportation solutions, such as vehicles, drivers, management and administrative services. Most industry participants offer fleet management solutions.
A prominent industry player is Wabtec Corporation (WAB - Free Report) , which is a provider of locomotives, value-added, technology-based equipment, systems and services to the freight rail and passenger transit industries across the globe.
3 Trends Shaping the Future of the Transport Equipment and Leasing Industry
Improving Business Volumes: With an uptick in economic activities, thanks to easing coronavirus-led restrictions and increasing vaccinations in the United States, the transport equipment and leasing companies are seeing improvement in business volumes. Evidently, Triton International’s bottom line surged more than 100% year over year in the first quarter due to strong trade volumes and container demand. Amid lingering uncertainty over an uneven global economic recovery, the industry stands to benefit from the anticipated increase in capital spending in the near term on the back of government stimulus efforts and pent-up demand.
Low Interest Rates: In April, the Federal Reserve announced its decision to keep interest rates near zero amid an “uneven” economic recovery. Low interest rates provide an incentive to businesses to borrow and invest, which boost the industry’s prospects at least in the near term.
Cost-Control Measures: Amid coronavirus-related uncertainties, the industry participants’ cost-cutting measures are encouraging. Through consistent measures, Ryder System (R - Free Report) generated annualized savings of $50 million from its multi-year maintenance cost-savings initiative. The company expects to generate additional savings of $30 million in 2021. Meanwhile, Trinity Industries (TRN - Free Report) is working toward rightsizing its operations, and lower variable and indirect costs. To this end, the company is reducing its manufacturing workforce strength to align production capacity with demand. Reduced costs should continue to support the bottom line of transport equipment and leasing companies.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Transportation - Equipment and Leasing industry, housed within the broader Transportation sector, currently carries a Zacks Industry Rank #122. This rank places it in the top 49% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates encouraging near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. The industry’s earnings estimate for 2021 has been revised 40.6% upward over the past year.
Given the bullish near-term prospects of the industry, we will present a few stocks that you may want to consider for your portfolio. But it’s worth taking a look at the industry’s shareholder returns and its current valuation first.
Industry Outperforms Sector & S&P 500
The Zacks Transportation - Equipment and Leasing industry has outperformed both the broader Transportation sector and the Zacks S&P 500 composite index over the past year.
Over this period, the industry has rallied 81.5% compared with the broader sector and S&P 500 Index’s increase of 54.8% and 41.8%, respectively.
One-Year Price Performance
Industry’s Current Valuation
On the basis of forward P/E (F12M), which is a commonly used multiple for valuing equipment and leasing stocks, the industry is currently trading at 15.03X, compared with the S&P 500’s 21.61X. It is also below the sector’s P/E (F12) ratio of 25.16X.
Over the past five years, the industry has traded as high as 16.77X, as low as 8.7X and at the median of 14.05X as the chart below shows.
Forward Price/Earnings (F12M) Ratio
Forward Price/Earnings (F12M) Ratio
4 Transport Equipment & Leasing Stocks to Buy
Herc Holdings: Through its subsidiary Herc Rentals, this company provides equipment rental services primarily in North America. Increasing demand for rental equipment should drive the company’s top line. Additionally, the company’s cost-control measures and improved operating efficiency are encouraging.
The Zacks Consensus Estimate for Herc Holdings’ 2021 earnings has been revised northward by 36.6% in the past 60 days. Shares of this Zacks Rank #1 (Strong Buy) company have gained more than 300% in a year’s time. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: HRI
Textainer Group Holdings Limited: Based in Hamilton, Bermuda, this is a leading intermodal container lessor. The company is benefiting from improving market conditions such as increased trade volumes and container demand. It expects substantial revenue growth on the back of the hefty investments it has made in new containers to support the uptick in demand.
The Zacks Consensus Estimate for Textainer Group’s 2021 earnings has been revised upward by 27.7% in the past 60 days. Shares of this Zacks Rank #1 company have rallied more than 200% in a year’s time.
Price and Consensus: TGH
Triton International Limited: This is also an intermodal container lessor based in Hamilton, Bermuda. The company also focuses on leasing chassis, which are used for transporting containers. Gradual increase in trade volumes and container demand bode well for the company. With easing coronavirus-led restrictions in the United States and parts of Europe, the company has been seeing continued recovery in its business over the past few quarters.
The Zacks Consensus Estimate for Triton International’s 2021 earnings has been revised upward by 17.3% in the past 60 days. Shares of this Zacks Rank #2 (Buy) company have surged more than 73% in a year’s time.
Price and Consensus: TRTN
CAI International: This is a transportation company offering intermodal container and rail leasing as well as global logistics services. The company is expected to continue to benefit from strong demand in the container market as the economy improves further on wider vaccine distributions. Higher fleet utilization and healthy resale market conditions are other growth drivers for the company.
The Zacks Consensus Estimate for CAI International’s 2021 earnings has been revised upward by 13.8% in the past 60 days. Shares of this Zacks Rank #2 company have soared more than 100% over the past year.
Price and Consensus: CAI
Breakout Biotech Stocks with Triple-Digit Profit Potential
The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.
Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +50%, +83% and +164% in as little as 2 months. The stocks in this report could perform even better.
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