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We believe GATX Corporation (GMT - Analyst Report), a leader in leasing transportation assets has significantly benefited from the reviving economy. The company remainsfocused on asset utilization by reducing idle rail cars and deploying more new rail cars to enhance its long-term growth along with improving lease pricing.

However, depressed marine rates, the adverse impact of lease rollovers, regulatory issues and stiff competition lead to our cautious stance on the company.

The rail industry continues to improve in North America with enhanced capacity and fewer idle cars given the increased fleet utilization. GATX’ lease pricing showed remarkable improvements on management’s constant efforts to reduce the number of idle railcars. As a result, management expects earnings in the range of $1.70–$1.80 per share for 2011.

GATX remains well positioned to invest with the objective of growing its asset base at attractive prices when the opportunity arises. In March, GATX purchased new railcars from Trinity Industries to be deployed over a five-year period.

Total rail investments in the first quarter were approximately $53.9 million or up 12% year over year, reflecting management’s focus in building rail assets for future growth.The emerging rail markets are also expected to provide excellent opportunities over the longer term.

Further, the company’s Specialty segment will concentrate on pursuing growth and capitalizing on select asset remarketing opportunities in the near term. GATX will also focus on the aircraft engine leasing joint venture with Rolls Royce. Additionally, the company’s American Steamship Company (ASC) segment deployed 8 vessels in April 2011 to support higher steel shipments this year.

The company remains committed to return shareholder value through dividend payments. In 2011, the company raised its annual dividend by 3.6% to $1.16 per share. This represents the first increase in the last two years and indicates management’s confidence on the long-term growth prospects on continued market recovery.

However, GATX Corp. operates in a highly competitive business environment, particularly in Specialty and ASC segments, in which it faces competition from the likes of J.B. Hunt Transport Services (JBHT - Analyst Report). Competitors may offer leases and loans to customers at lower rates than GATX, thereby affecting the company’s asset utilization or ability to lease assets profitably.

Further, weak economic conditions, financial market volatility and other factors may decrease customer demand for GATX’ assets and services and negatively impact its business and results of operations.

The company’s profitability is largely dependent on its ability to maintain assets on lease at satisfactory rates and to re-lease or sell assets upon expiration. An economic downturn resulting in lower demand, changes in customer behavior and supply/demand dynamics can adversely affect asset utilization and lease rates.

The company’s rail and marine operations are subject to various laws, rules and regulations administered by authorities in jurisdictions that significantly constraint GATX’ business strategies.

Going forward, we believe lease rates are showing an improving trend but still remain lower than the expiring rates. As a result, lease contracts expiring in 2011, may have negative rollover impacts as they were priced at a higher lease rate compared to current lease prices. Further, marine rates are also expected to remain under pressure due to unfavorable demand/supply dynamics.

Hence, we are currently maintaining our long-term Neutral recommendation on GATX, supported by a Zacks #3 Rank (Hold).

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