We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
3 Stocks to Gain From a Thriving Transport Equipment & Leasing Industry
Read MoreHide Full Article
The Zacks Transportation - Equipment and Leasing industry is benefiting from healthy equipment and lease demand, thanks to robust consumer spending. Businesses keen on making capital investments to ramp up operations are adding stimulus to lease demand. While rising interest rates might deter the industry’s prospects by slowing lease demand from small businesses, pent-up demand for transport equipment from large businesses is likely to keep overall lease demand at an elevated level.
Against this buoyant backdrop, companies like Ryder System (R - Free Report) , GATX Corporation (GATX - Free Report) and Textainer Group Holdings Limited are poised for growth.
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 economic recovery continues, demand for equipment finance and lease is growing steadily due to increased capital spending by corporations in order to ramp up operations. An increase in demand for railcars is driving growth of railcar lessors while intermodal container lessors are benefiting from an improvement in trade volumes and container demand. As coronavirus concerns ease, pent-up demand for transport equipment is expected to drive growth of the industry in the near term. Robust consumer spending also acts as a catalyst for the industry’s growth.
Supply Chain Woes: Persistent supply chain issues, aggravated by the Russia-Ukraine war, are hampering equipment availability. Parts shortages, labor scarcity and delays in delivery of new equipment are denting the top lines of industry participants. The situation is unlikely to improve in the near term, thanks to the prevalent pandemic.
Rising Interest Rates: The rising interest rate environment does not bode well for the industry as it increases finance costs and potentially weakens borrowing and lending activities. Last month, the Federal Reserve raised its benchmark interest rate by 0.5 percentage points, the largest hike since 2000. This followed a 0.25 percentage point increase in March, the first increase since December 2018. Many more rate hikes are expected in 2022 (including a substantial increase in June) as the Fed tries to curtail the sky-high inflation.
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 #63. This rank places it in the top 25% 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 two to one.
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 has been revised upward by 5.8% over the past year.
Given the bullish near-term prospects of the industry, we present a few stocks that you may want to consider for your portfolio. But it is worth taking a look at the industry’s shareholder returns and its current valuation first.
Industry Outperforms Both 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 58.7% compared with the broader sector and the S&P 500 Index’s 20.4% and 25.8% rise, 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 13.88X compared with the S&P 500’s 17.24. It is also below the sector’s P/E (F12) ratio of 14.18X.
Over the past five years, the industry has traded as high as 17.13X, as low as 8.92X and at the median of 14.50X, 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
Ryder: Miami, FL-based Ryder provides integrated logistics and transportation solutions. Strong freight market conditions in the United States are driving the company’s growth. Strong rental demand and favorable pricing are key catalysts for R’s growth. The company recently boosted its guidance for the second quarter as well as the full year owing to favorable pricing, and strong rental and used vehicle sales.
Shares of Ryder, which sports a Zacks Rank #1 (Strong Buy), have gained 3.6% in a year. The Zacks Consensus Estimate for the company’s 2022 earnings has been revised upward by 23.4% in the past 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: R
GATX: Based in Chicago, IL, GATX is a global railcar lessor with owned fleets in North America, Europe and Asia. Improvement in the North American railcar leasing market is expected to continue driving the company’s growth. Market lease rates are expected to be higher than average expiring rates for railcars renewing during the year. This, coupled with higher asset disposition gains, is expected to boost profits at GATX’s Rail North America segment (which contributes the majority of GATX’s top line) in 2022. .
Shares of GATX, which carries a a Zacks Rank #2 (Buy), have gained 14.5% in a year. The Zacks Consensus Estimate for the company’s 2022 earnings has been revised upward by 2.3% in the past 60 days.
Price and Consensus: GATX
Textainer Group: Based in Hamilton, Bermuda, Textainer Group is a leading intermodal container lessor. Increase in fleet size and strong consumer demand are boosting the company’s lease rental income. Higher trade volumes support TGH’s top-line growth.
Shares of Textainer Group, which carries a Zacks Rank #2, have gained around 4% in a year. The Zacks Consensus Estimate for the company’s 2022 earnings has been revised upward by 4.6% in the past 60 days.
Price and Consensus: TGH
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
3 Stocks to Gain From a Thriving Transport Equipment & Leasing Industry
The Zacks Transportation - Equipment and Leasing industry is benefiting from healthy equipment and lease demand, thanks to robust consumer spending. Businesses keen on making capital investments to ramp up operations are adding stimulus to lease demand. While rising interest rates might deter the industry’s prospects by slowing lease demand from small businesses, pent-up demand for transport equipment from large businesses is likely to keep overall lease demand at an elevated level.
Against this buoyant backdrop, companies like Ryder System (R - Free Report) , GATX Corporation (GATX - Free Report) and Textainer Group Holdings Limited are poised for growth.
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 economic recovery continues, demand for equipment finance and lease is growing steadily due to increased capital spending by corporations in order to ramp up operations. An increase in demand for railcars is driving growth of railcar lessors while intermodal container lessors are benefiting from an improvement in trade volumes and container demand. As coronavirus concerns ease, pent-up demand for transport equipment is expected to drive growth of the industry in the near term. Robust consumer spending also acts as a catalyst for the industry’s growth.
Supply Chain Woes: Persistent supply chain issues, aggravated by the Russia-Ukraine war, are hampering equipment availability. Parts shortages, labor scarcity and delays in delivery of new equipment are denting the top lines of industry participants. The situation is unlikely to improve in the near term, thanks to the prevalent pandemic.
Rising Interest Rates: The rising interest rate environment does not bode well for the industry as it increases finance costs and potentially weakens borrowing and lending activities. Last month, the Federal Reserve raised its benchmark interest rate by 0.5 percentage points, the largest hike since 2000. This followed a 0.25 percentage point increase in March, the first increase since December 2018. Many more rate hikes are expected in 2022 (including a substantial increase in June) as the Fed tries to curtail the sky-high inflation.
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 #63. This rank places it in the top 25% 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 two to one.
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 has been revised upward by 5.8% over the past year.
Given the bullish near-term prospects of the industry, we present a few stocks that you may want to consider for your portfolio. But it is worth taking a look at the industry’s shareholder returns and its current valuation first.
Industry Outperforms Both 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 58.7% compared with the broader sector and the S&P 500 Index’s 20.4% and 25.8% rise, 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 13.88X compared with the S&P 500’s 17.24. It is also below the sector’s P/E (F12) ratio of 14.18X.
Over the past five years, the industry has traded as high as 17.13X, as low as 8.92X and at the median of 14.50X, 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
Ryder: Miami, FL-based Ryder provides integrated logistics and transportation solutions. Strong freight market conditions in the United States are driving the company’s growth. Strong rental demand and favorable pricing are key catalysts for R’s growth. The company recently boosted its guidance for the second quarter as well as the full year owing to favorable pricing, and strong rental and used vehicle sales.
Shares of Ryder, which sports a Zacks Rank #1 (Strong Buy), have gained 3.6% in a year. The Zacks Consensus Estimate for the company’s 2022 earnings has been revised upward by 23.4% in the past 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: R
GATX: Based in Chicago, IL, GATX is a global railcar lessor with owned fleets in North America, Europe and Asia. Improvement in the North American railcar leasing market is expected to continue driving the company’s growth. Market lease rates are expected to be higher than average expiring rates for railcars renewing during the year. This, coupled with higher asset disposition gains, is expected to boost profits at GATX’s Rail North America segment (which contributes the majority of GATX’s top line) in 2022. .
Shares of GATX, which carries a a Zacks Rank #2 (Buy), have gained 14.5% in a year. The Zacks Consensus Estimate for the company’s 2022 earnings has been revised upward by 2.3% in the past 60 days.
Price and Consensus: GATX
Textainer Group: Based in Hamilton, Bermuda, Textainer Group is a leading intermodal container lessor. Increase in fleet size and strong consumer demand are boosting the company’s lease rental income. Higher trade volumes support TGH’s top-line growth.
Shares of Textainer Group, which carries a Zacks Rank #2, have gained around 4% in a year. The Zacks Consensus Estimate for the company’s 2022 earnings has been revised upward by 4.6% in the past 60 days.
Price and Consensus: TGH