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Near-Term Outlook for Transport Equipment & Leasing Industry

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The Zacks Transportation - Equipment and Leasing industry consists of companies offering equipment financing, leasing and supply chain management services. The industry also includes aircraft, railcar and intermodal container lessors. Some of these companies also provide transportation solutions such as vehicles, drivers, management and administrative services. Additionally, most industry participants offer fleet management solutions.

Prominent industry players include global railcar lessor GATX Corporation (GATX - Free Report) , integrated logistics and transportation solutions leader Ryder System (R - Free Report) and intermodal container lessor Triton International Limited (TRTN - Free Report) .

Let’s take a look at the industry’s three major themes:

  • Consumer confidence is critical to the growth of this industry. As consumers tend to spend more in a buoyant economy and tight labor market conditions, borrowing and lending activities increase. The recent positive readings of the economic indicators and solid consumer confidence certainly signal an upside for the industry.

  • The U.S. tax reform is a boon to the industry. A significant reduction is tax bills owing to the slashed corporate tax rate have prompted small and medium-sized businesses to invest in equipment via leasing. This apart, the leasing companies stand to benefit from increased cash flow.

  • Even though economic factors such as interest rate hikes and the ongoing trade war between the United States and China do not seem to have materially impacted the equipment and leasing industry so far, threats from these can’t be ignored completely. A trade war of this sort has the potential to slow down trading activities and adversely impact the overall growth of the economy. With the equipment and leasing industry highly dependent on growth of the domestic economy, the turmoil between the two nations certainly does not bode well for the industry participants.  Moreover, a rising interest rate environment makes borrowing expensive and hampers lending activity.

Zacks Industry Rank Indicates Bright Prospects

The Zacks Transportation - Equipment and Leasing industry, which is housed within the broader Transportation sector, currently carries a Zacks Industry Rank #70. This rank places it at the top 27% 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 bleak 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 positioning in the top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate. The groups’ current-year EPS estimate has increased more than 8% over the past year.

In light of the positivity, we will present a few stocks that you may want to consider for your portfolio. But, before that, it’s worth taking a look at the industry’s shareholder returns and current valuation.

Industry Lags Sector & S&P 500

The Zacks Transportation - Equipment and Leasing industry has lagged both the broader Transportation sector and the Zacks S&P 500 composite over the past year.

Over this period, the industry has declined 7.3% versus the broader sector and the S&P 500 index’s gain of 0.5% and 3.3%, respectively.

One-Year Price Performance



Industry’s Current Valuation

On the basis of a forward P/E (F12) ratio, which is a commonly used multiple for valuing equipment and leasing stocks, the industry is currently trading at 11.75X compared with the S&P 500’s 16.09X. It is also above the sector’s P/E (F12) ratio of 13.55X.

Over the past five years, the industry has traded as high as 16.21X, as low as 8.63X and at the median of 13.52X, as the chart below shows.

Forward Price/Earnings (F12) Ratio

Forward Price/Earnings (F12) Ratio



 

Bottom Line

Despite the concerns related to rising interest rates and trade war, a flourishing economy with record-low unemployment rates and healthy credit conditions place the equipment and leasing industry on a solid footing.

Below we present two stocks with a Zacks Rank #1 (Strong Buy) and 2 (Buy) that are well positioned to gain from the upbeat economy. Also, there are two stocks with a Zacks Rank #3 (Hold) that investors may currently hold on to. You can see the complete list of today’s Zacks #1 Rank stocks here.

Fly Leasing Limited (FLY - Free Report) is a global aircraft lessor of modern, high-demand and fuel-efficient commercial jets. The Zacks Consensus Estimate for this Zacks Rank #1 company’s current-year EPS has moved 13.6% north in the last 90 days. The company has expected earnings per share growth of 10% over the next five years, against the industry’s 9.7%.

Price and Consensus: FLY

 

The Greenbrier Companies, Inc. (GBX - Free Report) is a leading supplier of transportation equipment and services to the railroad and related industries. The Zacks Consensus Estimate for this #2 ranked company’s fiscal 2019 (ending Aug 31) EPS has been revised 6.1% upward in the last 90 days. The company has an impressive earnings history, having surpassed estimates in three of the trailing four quarters.

Price and Consensus: GBX



 

Air Lease Corp. (AL - Free Report) is an aircraft leasing company based in Los Angeles. It is primarily involved in purchasing commercial aircraft directly from the manufacturers and leasing the same to its airline customers across the globe. The company carries a Zacks Rank of 3 and the consensus mark for current-year EPS has been revised 7.2% upward in the last 90 days. The company has expected earnings per share growth of 47.1% for the current year against the industry’s 18.4%.

Price and Consensus: AL



CAI International, Inc. (CAI - Free Report) is one of the leading intermodal freight container leasing and management companies. The Zacks Consensus Estimate for this #3 ranked player’s current-year EPS has gone up 2.1% in the last 90 days. Shares of the company have surged 22.3% in a month against the industry’s decline of 8.9%.

Price and Consensus: CAI



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