Upped Target on Hold-Rated GATX

We are continuing our Hold on GATX Corporation (GMT - Analyst Report), but raising our target price to $50. GATX posted first quarter diluted EPS of $0.90, up 38% year over year, well above consensus of $0.68 and our $0.71 estimate.

We are maintaining our 2008 diluted EPS estimate at $3.30 and initiating our 2009 estimate at $3.50. We expect results to reflect higher lease rates, strong utilization, and a lower effective tax rate, with EPS benefitting from a $200 million share repurchase plan.

GATX is one of the largest railcar and locomotive lessors in North America, and is a leasing service provider to over 1,000 customers, most of which have solid credit profiles. Furthermore, GATX continues to experience strong utilization rates in its railcar operations. The company maintains a relatively conservative balance sheet, has strong cash flow, and an attractive dividend yield.

At its current price, GATX is now trading at 14.2X estimated 2009 diluted EPS, a 4% premium to the industry based on 2009 consensus estimates. Our target price of $50 represents roughly a 14 ¼X P/E multiple of our 2009 EPS estimate of $3.50, providing a PEG ratio (P/E divided by estimated future growth rate) of 1.1X, in line with the median for the industry.

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