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Following the second quarter earnings announcement on July 19, more than half of the analysts covering GATX Corporation (GMT - Analyst Report) have revised the estimates upward. The upward revisions were based on higher lease rates, better asset utilization, and improvement in lease terms alongside higher demand for locomotives.

Second Quarter Highlights

Adjusted EPS for the second quarter was 80 cents, up 86% year over year and also above the Zacks Consensus Estimate of 61 cents

Revenues for the second quarter increased 9% year over year to $343 million and surpassed the Zacks Consensus Estimate of $338 million, aided by lease rates, North American fleet utilization and growth in the lease terms.

Agreements of Analysts

Of the five analysts covering the stock in the last 7 days, one revised estimates upward, but none cut their estimates for the ensuing third quarter of 2012.  However, for the fourth quarter of 2012, out of the five analysts covering the stock, none raised the EPS estimate for the fourth quarter of fiscal 2012 but one reduced the same. 

For fiscal 2012, one out of the three analysts revised the estimate upward while none slashed them. Likewise, for fiscal 2013, out of the six analysts, one analyst increased the estimate but none reduced.

Currently, the Zacks Consensus EPS Estimate for the third quarter of 2012 is pegged at 65 cents per share with a projected annual decline of 2.99%. Similarly, for the fourth quarter of 2012, the current Zacks Consensus EPS Estimate of 66 cents per share reflects a year-over-year gain of 5.81%.

Magnitude of Estimate Revisions

In synergy with the upward revision of estimate during the last 7 days, the current Zacks Consensus Estimates for the third quarter of 2012 is just a penny above the previous estimates of 64 cents. However, for the fourth quarter of 2012, the current Zacks Consensus Estimates is in line with the previous estimate of 66 cents over the last 7 days.

For fiscal 2012, during the last 7 days, the current Zacks Consensus Estimates was 6 cents above the previous estimate of $2.73. Likewise, for 2013, the current Zacks Consensus Estimates was 4 cents above the previous estimate of $3.14.

Earning Surprises

With respect to earnings surprises, the company has produced an average surprise of 23.58% in the trailing four quarters. The current Zacks Consensus Estimates for both the ongoing quarter and the fourth quarter of 2012 contain 0.00% upside potentials (essentially a proxy for future earning surprises), respectively, while for fiscal 2012 downside potential is 0.00%. However, Zacks Consensus Estimate for fiscal 2013 reflects an upside potentials of 2.20%.

Our Recommendation

We expect GATX Corp. to benefit from higher lease rates and increased asset utilization and remarketing opportunities. The company’s segments remain poised to deliver strong results given improvements in underlying market fundamentals. Further, expansion of the company’s asset base to enhance its long-term performance as well as paying higher returns to shareholders through dividend payments bode well for increased market traction. However, regulatory pressures and competitive threats from carriers like American Railcar Industries, Inc. (ARII - Snapshot Report) compel us to remain cautious on the stock.

We currently have a long-term Outperform recommendation on GATX. However, for the short term (1-3 months), the stock has a Zacks #2 Rank (Buy).

About Earnings Estimate Scorecard

Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at:

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