(GMT - Analyst Report
) has delivered four consecutive quarters of positive earnings surprises, outpacing the Zacks Consensus Estimate by an average of 23.6%. Higher lease rates, better asset utilization, improvement in lease terms and higher demand for locomotives helped spark earnings momentum for this rail and marine equipment leasing company, which achieved a Zacks #1 Rank (Strong Buy) on August 22, 2012.
Going forward, GATX is expected to derive huge benefits from the booming U.S. freight railroad industry, growing demand for railcars and strong demand for vessels of iron ore shipment. Therefore, GATX is a lucrative opportunity for growth-seeking investors.
Robust 2Q, Raised Outlook
On July 19, GATX reported excellent financial results for the second-quarter 2012. Adjusted earnings per share of 80 cents outpaced the Zacks Consensus Estimate by 19 cents (31.2%) and the year-ago earnings by a whopping 47 cents (142.4%). Total operating revenue of $341.7 million beat the Zacks Consensus Estimate by 1.2% and increased 3.7% year over year.
Major catalysts for GATX are managements emphasis on investments to increase its asset base and expansion in emerging markets to tap business potentials. In the most recent quarter, the company witnessed healthy demand for new railcars, which GATX delivers for a long-term (5-year) supply agreement.
The railcars, which are scheduled for delivery through the end of 2013, are already allocated to customers with attractive long-term lease rates. These positives encouraged management to raise its 2012 earnings expectations to between $2.65 and $2.75 per share from its previous expectation of $2.40 to $2.60.
Strong Estimate Revisions
Earnings momentum for GATX has been rising over the last 60 days. The Zacks Consensus Estimates moved up 5.3% to $2.79 for 2012 and 4.5% to $3.22 for 2013. The current Zacks Consensus Estimates indicate solid year-over-year growth of almost 39% for 2012 and 15.4% for 2013.
Valuation Premium Warranted
Valuation for GATX looks relatively expensive. The current forward P/E of 15.11x implies a premium of 54% over the peer group average of 9.81x. Similarly, the current P/S ratio of 1.49x reflects a 73.3% premium to the peer group average of 0.86x. However, the trailing 12-month ROE of the company is 11.5%, which is slightly higher than the peer group average of 11.1%.
The premium valuation is warranted as the company is likely to benefit from its long-term lease contracts, which will enable it to lock the prevailing higher rates in the market. The company expects 900 additional coalcars for renewal during the rest of 2012 and is constantly reducing the number of its idle railcars. Furthermore, GATX is paying a regular dividend with a current yield of 2.84%.
Chart Shows Growth Potential
The earnings growth is reflected in the chart below. The estimate revision trend indicates a steep upward movement through fiscal 2014. The stock price also is expected to move in tandem with the increasing estimates revision trend.
Chicago, Illinois headquartered GATX Corp. was founded in 1998. The company provides leasing and specialized financial services for rail and marine industry assets throughout North America and Europe. As of June 30, 2012, GATX owned a worldwide fleet of approximately 130,396 (109,187 North America and 21,209 Europe) railcars and 14 vessels. Additionally, GATX provides asset remarketing and asset management services to the marine and industrial equipment sectors.