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We believe GATX Corporation (GMT - Analyst Report), a leader in leasing transportation assets has significantly benefited from higher lease rates and North American fleet utilization. In addition, increased asset utilization through the reduction of idle rail cars and deployment of new rail cars will be accretive for the company’s long-term growth. However, depressed marine rates, regulatory issues and stiff competition induce us to adopt a cautious stance on the company.

The North American rail market has improved on the back of increased capacity and fleet utilization. In the international markets particularly Europe, Rail poses attractive opportunities in the tank car business, which will likely drive growth prospectus in Eastern Europe. GATX Corp. continues to deliver strong results across all its segments and we expect the segments to gain from higher lease, asset remarketing and scrap products.

The company’s Specialty segment focuses primarily on capitalizing asset remarketing opportunities. GATX Corp. remains focused on restructuring cost and evaluating investment opportunities in this segment. Going forward, ASC registered strong growth in iron ore shipment and we expect the trend to continue this year and beyond given increased production of steel in the domestic and international markets.

GATX remains well positioned to invest with the objective of growing its asset base at attractive prices when the opportunity arises. In March, GATX Corp. purchased 12,500 new railcars from Trinity Industries and expects delivery over a five-year period beginning from the third quarter of 2011.

Overall, the total rail investments in the first six months of 2011 were approximately $156.3 million, up 77% year over year, reflecting managements focus in consolidating rail assets for future growth.

The company remains committed to returning 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 dividend hike in the last two years and indicates management’s confidence on the long-term growth prospects given the continued market recovery.

However, we believe the increase in the lease renewal term for cars remains detrimental to the company’s profitability going forward given the higher lease prices in the prevailing market. Further, Specialty’s marine businesses are expected to remain under pressure due to inconsistent demand for marine transport services against higher capacity of vessels.

Despite the strong performance of ASC, the company expects the segment’s operation to be disrupted by labor negotiation for the renewal of labor agreement, which expired on August 1, 2011.

Going forward, GATX Corp. operates in a highly competitive business environment, particularly in Specialty and ASC segments, where 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’s assets and services and negatively impact its business and results of operations.

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

Hence, we are currently maintaining our long-term Neutral recommendation on GATX. However, the stock holds a Zacks #2 Rank, implying a short-term (1-3 months) Buy rating.

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