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3 Top Stocks From the Prospering Transport Equipment & Leasing Industry
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The Zacks Transportation - Equipment and Leasing industry is benefiting from healthy equipment and lease demand as businesses increasingly make capital investments to ramp up operations, thanks to continued growth in the economy. The current near-zero interest rates are adding stimulus to lease demand. Despite supply chain disruptions, the near-term outlook for the transport equipment and leasing industry looks promising on strong consumer demand.
Against this buoyant backdrop, companies like Ryder System (R - Free Report) , GATX Corporation (GATX - Free Report) and Trinity Industries (TRN - Free Report) are set to benefit.
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
Supply Chain Woes: Persistent supply chain disruptions, thanks to the prevalent pandemic, are a major headwind for the transport equipment and leasing industry. Parts shortages, labor scarcity and delay in delivery of new equipment are denting the top lines of industry participants. The situation is unlikely to improve in the near term as newer variants of coronavirus emerge, threatening to worsen supply chain disruptions.
Healthy Equipment and Lease Demand: As corporations continue to show interest in capital expansion in order to scale up operations and recover from the pandemic, demand for equipment finance and lease remains strong. An increase in demand for railcars is driving the growth of railcar lessors while intermodal container lessors are benefiting from an improvement in trade volumes and container demand. Industry executives expect the favorable demand environment to sustain in the near term on the back of robust consumer demand.
Anticipated Interest Rate Hikes: In its January meeting, the Federal Reserve signaled raising interest rates in March. Multiple rate hikes are expected in 2022 to curtail inflation. Interest rate hikes do not bode well for the industry as these raise finance costs and potentially weaken borrowing and lending activities. Nevertheless, as of now, the anticipated interest rate hike in March might entice consumers and businesses to engage in capital expansion activities at the current low rates, thus boosting lease demand.
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 #54. This rank places it in the top 21% 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 solid 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 is positioned in the top 50% of the Zacks-ranked industries.
Before we present a few noteworthy stocks, it’s worth taking a look at the industry’s stock market performance and current valuation.
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 gained 23.3% compared with the broader sector and the S&P 500 Index’s increase of 8.7% and 18.7%, 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 12.05X, compared with the S&P 500’s 20.41. It is also below the sector’s P/E (F12) ratio of 16.48X.
Over the past five years, the industry has traded as high as 17.13X, as low as 8.92X and at the median of 14.98X as the chart below shows.
Forward Price/Earnings (F12M) Ratio
Forward Price/Earnings (F12M) Ratio
3 Transport Equipment & Leasing Stocks to Keep a Tab On
Trinity: Based in Dallas, TX, Trinity owns market-leading businesses offering rail transportation products and services in North America. Improved railcar demand should drive the company’s growth in 2022. Cost-control measures are expected to continue to boost TRN’s bottom line. Trinity’s commitment to reward its shareholders despite adversities indicates its financial prosperity. In December 2021, the company announced a 9.5% hike in its quarterly dividend to 23 cents per share (annually: 92 cents).
GATX: Based in Chicago, IL, GATX is a global railcar lessor with owned fleets in North America, Europe, and Asia. Continued recovery in the North American railcar leasing market is expected to drive the company’s growth in 2022. Improved market lease rates and higher asset disposition gains are anticipated to boost profits at the Rail North America segment, which contribute the majority of GATX’s top line.
Shares of GATX, carrying a Zacks Rank #2 (Buy), have gained 11.7% in a year. The Zacks Consensus Estimate for the company’s 2022 earnings has been revised upward by 2 cents in the past 60 days.
Price and Consensus: GATX
Ryder: Miami, FL-based Ryder provides integrated logistics and transportation solutions. With improved economic and freight market conditions, R is benefiting from higher rental revenues owing to strong demand and favorable pricing. Ryder’s acquisitions of Whiplash and Midwest Warehouse & Distribution System expand its e-commerce fulfillment network and boost multi-client warehousing capabilities. The transactions are expected to drive growth of the company’s supply chain solutions segment.
Shares of Ryder, carrying a Zacks Rank #2, have appreciated nearly 10% in a year. The Zacks Consensus Estimate for the company’s 2022 earnings has been revised upward by 1.9% in the past 60 days.
Price and Consensus: R
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3 Top Stocks From the Prospering Transport Equipment & Leasing Industry
The Zacks Transportation - Equipment and Leasing industry is benefiting from healthy equipment and lease demand as businesses increasingly make capital investments to ramp up operations, thanks to continued growth in the economy. The current near-zero interest rates are adding stimulus to lease demand. Despite supply chain disruptions, the near-term outlook for the transport equipment and leasing industry looks promising on strong consumer demand.
Against this buoyant backdrop, companies like Ryder System (R - Free Report) , GATX Corporation (GATX - Free Report) and Trinity Industries (TRN - Free Report) are set to benefit.
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
Supply Chain Woes: Persistent supply chain disruptions, thanks to the prevalent pandemic, are a major headwind for the transport equipment and leasing industry. Parts shortages, labor scarcity and delay in delivery of new equipment are denting the top lines of industry participants. The situation is unlikely to improve in the near term as newer variants of coronavirus emerge, threatening to worsen supply chain disruptions.
Healthy Equipment and Lease Demand: As corporations continue to show interest in capital expansion in order to scale up operations and recover from the pandemic, demand for equipment finance and lease remains strong. An increase in demand for railcars is driving the growth of railcar lessors while intermodal container lessors are benefiting from an improvement in trade volumes and container demand. Industry executives expect the favorable demand environment to sustain in the near term on the back of robust consumer demand.
Anticipated Interest Rate Hikes: In its January meeting, the Federal Reserve signaled raising interest rates in March. Multiple rate hikes are expected in 2022 to curtail inflation. Interest rate hikes do not bode well for the industry as these raise finance costs and potentially weaken borrowing and lending activities. Nevertheless, as of now, the anticipated interest rate hike in March might entice consumers and businesses to engage in capital expansion activities at the current low rates, thus boosting lease demand.
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 #54. This rank places it in the top 21% 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 solid 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 is positioned in the top 50% of the Zacks-ranked industries.
Before we present a few noteworthy stocks, it’s worth taking a look at the industry’s stock market performance and current valuation.
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 gained 23.3% compared with the broader sector and the S&P 500 Index’s increase of 8.7% and 18.7%, 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 12.05X, compared with the S&P 500’s 20.41. It is also below the sector’s P/E (F12) ratio of 16.48X.
Over the past five years, the industry has traded as high as 17.13X, as low as 8.92X and at the median of 14.98X as the chart below shows.
Forward Price/Earnings (F12M) Ratio
Forward Price/Earnings (F12M) Ratio
3 Transport Equipment & Leasing Stocks to Keep a Tab On
Trinity: Based in Dallas, TX, Trinity owns market-leading businesses offering rail transportation products and services in North America. Improved railcar demand should drive the company’s growth in 2022. Cost-control measures are expected to continue to boost TRN’s bottom line. Trinity’s commitment to reward its shareholders despite adversities indicates its financial prosperity. In December 2021, the company announced a 9.5% hike in its quarterly dividend to 23 cents per share (annually: 92 cents).
Shares of Trinity have gained 7.3% in the past six months. The company sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: TRN
GATX: Based in Chicago, IL, GATX is a global railcar lessor with owned fleets in North America, Europe, and Asia. Continued recovery in the North American railcar leasing market is expected to drive the company’s growth in 2022. Improved market lease rates and higher asset disposition gains are anticipated to boost profits at the Rail North America segment, which contribute the majority of GATX’s top line.
Shares of GATX, carrying a Zacks Rank #2 (Buy), have gained 11.7% in a year. The Zacks Consensus Estimate for the company’s 2022 earnings has been revised upward by 2 cents in the past 60 days.
Price and Consensus: GATX
Ryder: Miami, FL-based Ryder provides integrated logistics and transportation solutions. With improved economic and freight market conditions, R is benefiting from higher rental revenues owing to strong demand and favorable pricing. Ryder’s acquisitions of Whiplash and Midwest Warehouse & Distribution System expand its e-commerce fulfillment network and boost multi-client warehousing capabilities. The transactions are expected to drive growth of the company’s supply chain solutions segment.
Shares of Ryder, carrying a Zacks Rank #2, have appreciated nearly 10% in a year. The Zacks Consensus Estimate for the company’s 2022 earnings has been revised upward by 1.9% in the past 60 days.
Price and Consensus: R