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4 Top Stocks From the Buoyant Transport Equipment & Leasing Industry
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With the recovery of the U.S. economy, increased capital spending by corporations to ramp up operations is favoring the growth of the Zacks Transportation - Equipment and Leasing industry. The low interest rate environment is providing a further incentive to businesses to borrow and invest, which in turn is driving lease demand. With these factors expected to continue in the near term, the industry’s prospects appear rosy.
Companies like Ryder System (R - Free Report) , Herc Holdings (HRI - Free Report) , GATX Corporation (GATX - Free Report) , and The Greenbrier Companies (GBX - Free Report) are expected to gain from the buoyancy in the industry.
About the Industry
The Zacks Transportation - Equipment and Leasing industry consists of companies offering equipment financing as well as leasing and supply chain management services. The industry includes aircraft, railcar, and intermodal container lessors. Some of these companies even provide logistics and transportation solutions such as vehicles, drivers, management, and administrative services. Most industry participants offer fleet management solutions and serve customers, ranging from small businesses to large international enterprises. Customers range from a wide variety of industries, the most significant of which include automotive, electronics, transportation, grocery, lumber and wood products, food service, and home furnishing. A few of these companies provide locomotives, value-added, technology-based equipment, systems, and services to freight rail and passenger transit industries.
3 Trends Shaping the Future of the Transport Equipment and Leasing Industry
Healthy equipment and lease demand: As the U.S. economy continues to recover and firms aim at ramping up production by increasing capital investments, the transport equipment and leasing companies are seeing healthy equipment demand. Triton International’s bottom line surged more than 100% year over year in the first half of 2021 due to strong trade volumes and container demand. Despite volatility in the environment surrounding COVID-19 variants, and supply chain disruptions, which are delaying delivery of new equipment, industry executives expect business conditions to remain favorable in the near term.
Low interest rate environment: Low interest rates are adding stimulus to equipment and lease demand. In the recently concluded September meeting, the Federal Reserve kept interest rates steady near zero. This should continue to boost equipment and lease demand in the near term as businesses take advantage of the low-rate environment and make investments to scale up operations.
Cost-saving initiatives: Cost-control measures are supporting the bottom line of transport equipment and leasing companies. From its multi-year maintenance cost-savings initiative, Ryder System expects to generate savings of $30 million in 2021. Wabtec Corporation (WAB - Free Report) expects to achieve run-rate savings of $250 million in the current year owing to cost management and synergies from its merger with GE Transportation, which in turn, should lead to improved margins. Trinity Industries’ (TRN - Free Report) cost-saving initiatives are helping the company expand its margins.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Transportation - Equipment and Leasing industry, housed within the broader Transportation sector, currently carries a Zacks Industry Rank #35. This rank places it in the top 14% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates encouraging near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. The industry’s earnings estimate for 2021 has been revised 52.7% upward over the past year.
Given the bullish near-term prospects of the industry, we will present a few stocks that you may want to consider for your portfolio. But it’s worth taking a look at the industry’s shareholder returns and its current valuation first.
Industry Outperforms Sector & S&P 500
The Zacks Transportation - Equipment and Leasing industry has outperformed both the broader Transportation sector and the Zacks S&P 500 composite index over the past year.
Over this period, the industry has rallied 63.8% compared with the broader sector and S&P 500 Index’s increase of 15.5% and 36.5%, respectively.
One-Year Price Performance
Industry's Current Valuation
On the basis of forward P/E (F12M), which is a commonly used multiple for valuing equipment and leasing stocks, the industry is currently trading at 14.63X, compared with the S&P 500’s 20.92. It is also below the sector’s P/E (F12) ratio of 17.87X.
Over the past five years, the industry has traded as high as 16.96X, as low as 8.87X and at the median of 14.63X as the chart below shows.
Forward Price/Earnings (F12M) Ratio
Forward Price/Earnings (F12M) Ratio
4 Transport Equipment & Leasing Stocks to Buy
The Greenbrier Companies: This company is a leading supplier of transportation equipment and services to the railroad and related industries. This Zacks Rank #1 (Strong Buy) company is benefiting from the recovery in railcar manufacturing and leasing. Its strategic cost-control initiatives are supporting its bottom line. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Greenbrier’s fiscal 2021 (ended Aug 31, 2021) earnings has been revised upward by more than 100% over the past 90 days. The same for fiscal 2022 earnings has been revised northward by 24.8%. Shares of the company have gained approximately 50% over the past year.
Price and Consensus: GBX
Herc Holdings: Through its subsidiary Herc Rentals, this company provides equipment rental services primarily in North America. Strong Equipment rental revenues due to higher volume of equipment on rent and favorable pricing are driving the company’s growth. The company’s recent acquisitions of CBS Rentals and Dwight Crane Ltd. further bolsters its growth. The CBS Rentals acquisition expands Herc Holdings’ presence in Texas. The Dwight Crane acquisition helps the company expand its entertainment-related rental portfolio.
The Zacks Consensus Estimate for Herc Holdings’ 2021 earnings has been revised northward by 10.7% in the past 90 days. Shares of this Zacks Rank #1 company have rallied more than 200% in a year’s time.
Price and Consensus: HRI
Ryder System: This Miami, FL-based company provides integrated logistics and transportation solutions. With improved economic and freight market conditions, strong segmental performances support the company’s growth. Its measures to reward its shareholders are encouraging, thanks to its healthy free cash flow generation capacity. In July, the company, carrying a Zacks Rank #1, announced a 3.6% hike in its quarterly dividend payout.
The Zacks Consensus Estimate for Ryder’s 2021 earnings has been revised upward by 26.6% in the past 90 days. Shares of the company have surged 93.2% in a year.
Price and Consensus: R
GATX Corporation: Based in Chicago, IL, this is a global railcar lessor, with owned fleets in North America, Europe, and Asia. Improvement in the railcar leasing market in North America is aiding the company. A robust secondary market for railcar sales is boosting profits at the company’s Rail North America segment. GATX’s commitment to add shareholder value adds to the positivity.
The Zacks Consensus Estimate for this Zacks Rank #2 (Buy) company’s 2021 earnings has been revised upward by 7.8% in the past 90 days. Shares of the company have appreciated 37.6% in the past 90 days.
Price and Consensus: GATX
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4 Top Stocks From the Buoyant Transport Equipment & Leasing Industry
With the recovery of the U.S. economy, increased capital spending by corporations to ramp up operations is favoring the growth of the Zacks Transportation - Equipment and Leasing industry. The low interest rate environment is providing a further incentive to businesses to borrow and invest, which in turn is driving lease demand. With these factors expected to continue in the near term, the industry’s prospects appear rosy.
Companies like Ryder System (R - Free Report) , Herc Holdings (HRI - Free Report) , GATX Corporation (GATX - Free Report) , and The Greenbrier Companies (GBX - Free Report) are expected to gain from the buoyancy in the industry.
About the Industry
The Zacks Transportation - Equipment and Leasing industry consists of companies offering equipment financing as well as leasing and supply chain management services. The industry includes aircraft, railcar, and intermodal container lessors. Some of these companies even provide logistics and transportation solutions such as vehicles, drivers, management, and administrative services. Most industry participants offer fleet management solutions and serve customers, ranging from small businesses to large international enterprises. Customers range from a wide variety of industries, the most significant of which include automotive, electronics, transportation, grocery, lumber and wood products, food service, and home furnishing. A few of these companies provide locomotives, value-added, technology-based equipment, systems, and services to freight rail and passenger transit industries.
3 Trends Shaping the Future of the Transport Equipment and Leasing Industry
Healthy equipment and lease demand: As the U.S. economy continues to recover and firms aim at ramping up production by increasing capital investments, the transport equipment and leasing companies are seeing healthy equipment demand. Triton International’s bottom line surged more than 100% year over year in the first half of 2021 due to strong trade volumes and container demand. Despite volatility in the environment surrounding COVID-19 variants, and supply chain disruptions, which are delaying delivery of new equipment, industry executives expect business conditions to remain favorable in the near term.
Low interest rate environment: Low interest rates are adding stimulus to equipment and lease demand. In the recently concluded September meeting, the Federal Reserve kept interest rates steady near zero. This should continue to boost equipment and lease demand in the near term as businesses take advantage of the low-rate environment and make investments to scale up operations.
Cost-saving initiatives: Cost-control measures are supporting the bottom line of transport equipment and leasing companies. From its multi-year maintenance cost-savings initiative, Ryder System expects to generate savings of $30 million in 2021. Wabtec Corporation (WAB - Free Report) expects to achieve run-rate savings of $250 million in the current year owing to cost management and synergies from its merger with GE Transportation, which in turn, should lead to improved margins. Trinity Industries’ (TRN - Free Report) cost-saving initiatives are helping the company expand its margins.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Transportation - Equipment and Leasing industry, housed within the broader Transportation sector, currently carries a Zacks Industry Rank #35. This rank places it in the top 14% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates encouraging near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. The industry’s earnings estimate for 2021 has been revised 52.7% upward over the past year.
Given the bullish near-term prospects of the industry, we will present a few stocks that you may want to consider for your portfolio. But it’s worth taking a look at the industry’s shareholder returns and its current valuation first.
Industry Outperforms Sector & S&P 500
The Zacks Transportation - Equipment and Leasing industry has outperformed both the broader Transportation sector and the Zacks S&P 500 composite index over the past year.
Over this period, the industry has rallied 63.8% compared with the broader sector and S&P 500 Index’s increase of 15.5% and 36.5%, respectively.
One-Year Price Performance
Industry's Current Valuation
On the basis of forward P/E (F12M), which is a commonly used multiple for valuing equipment and leasing stocks, the industry is currently trading at 14.63X, compared with the S&P 500’s 20.92. It is also below the sector’s P/E (F12) ratio of 17.87X.
Over the past five years, the industry has traded as high as 16.96X, as low as 8.87X and at the median of 14.63X as the chart below shows.
Forward Price/Earnings (F12M) Ratio
Forward Price/Earnings (F12M) Ratio
4 Transport Equipment & Leasing Stocks to Buy
The Greenbrier Companies: This company is a leading supplier of transportation equipment and services to the railroad and related industries. This Zacks Rank #1 (Strong Buy) company is benefiting from the recovery in railcar manufacturing and leasing. Its strategic cost-control initiatives are supporting its bottom line. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Greenbrier’s fiscal 2021 (ended Aug 31, 2021) earnings has been revised upward by more than 100% over the past 90 days. The same for fiscal 2022 earnings has been revised northward by 24.8%. Shares of the company have gained approximately 50% over the past year.
Price and Consensus: GBX
Herc Holdings: Through its subsidiary Herc Rentals, this company provides equipment rental services primarily in North America. Strong Equipment rental revenues due to higher volume of equipment on rent and favorable pricing are driving the company’s growth. The company’s recent acquisitions of CBS Rentals and Dwight Crane Ltd. further bolsters its growth. The CBS Rentals acquisition expands Herc Holdings’ presence in Texas. The Dwight Crane acquisition helps the company expand its entertainment-related rental portfolio.
The Zacks Consensus Estimate for Herc Holdings’ 2021 earnings has been revised northward by 10.7% in the past 90 days. Shares of this Zacks Rank #1 company have rallied more than 200% in a year’s time.
Price and Consensus: HRI
Ryder System: This Miami, FL-based company provides integrated logistics and transportation solutions. With improved economic and freight market conditions, strong segmental performances support the company’s growth. Its measures to reward its shareholders are encouraging, thanks to its healthy free cash flow generation capacity. In July, the company, carrying a Zacks Rank #1, announced a 3.6% hike in its quarterly dividend payout.
The Zacks Consensus Estimate for Ryder’s 2021 earnings has been revised upward by 26.6% in the past 90 days. Shares of the company have surged 93.2% in a year.
Price and Consensus: R
GATX Corporation: Based in Chicago, IL, this is a global railcar lessor, with owned fleets in North America, Europe, and Asia. Improvement in the railcar leasing market in North America is aiding the company. A robust secondary market for railcar sales is boosting profits at the company’s Rail North America segment. GATX’s commitment to add shareholder value adds to the positivity.
The Zacks Consensus Estimate for this Zacks Rank #2 (Buy) company’s 2021 earnings has been revised upward by 7.8% in the past 90 days. Shares of the company have appreciated 37.6% in the past 90 days.
Price and Consensus: GATX