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3 Stocks to Buy From the Transport Equipment & Leasing Industry
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The Zacks Transportation - Equipment and Leasing industry currently stands to benefit from the solid investor-friendly steps. Notably, consistent shareholder-friendly initiatives in the form of dividend payouts or share buybacks imply solid financial strength of companies in the Equipment and Leasing industry. Such moves boost investors’ confidence and positively impact the bottom line.
On the flip side, the industry continues to grapple withchallenges, ranging from raging inflation, higher interest rates, supply-chain disruptions and high operating costs. The headwinds are likely to hurt the demand for containers.
Nonetheless, we believe that betting on three industry players, namely Westinghouse Air Brake Technologies Corporation, operating as Wabtec Corporation (WAB - Free Report) , GATX Corporation (GATX - Free Report) ) and Trinity Industries, Inc. (TRN - Free Report) ), is a prudent move as they are better positioned to brave multiple industry challenges.
Industry Overview
The Zacks Transportation - Equipment and Leasing industry includes 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, varying from small businesses to large international enterprises. Customers range from a wide variety of industries, the most significant being automotive, electronics, transportation, grocery, lumber and wood products, food service and home furnishing. A few of these companies provide locomotives and technology-based equipment, systems and services to freight rail and passenger transit industries.
3 Key Trends Influencing the Transportation - Equipment and Leasing Industry
Strong Financial Returns for Shareholders: With the resumption of economic activities, many players, including some Transportation - Equipment and Leasing industry players, are reactivating shareholder-friendly measures in the form of dividend payouts and share buybacks, which underline their solid financial footing and confidence in the business.
For example, in January 2024, GATX’s board of directors announced a dividend hike of almost 5.5%, thereby raising its quarterly cash dividend to 58 cents from 55 cents per share. Notably, 2024 marks the 106th consecutive year of GATX paying out dividends.
Wabtec (concurrent with its fourth-quarter 2023 earnings release on Feb 14, 2024) announced a 17.6% dividend increase, thereby raising its quarterly cash dividend to 20 cents from 17 cents per share. Additionally, WAB’s board announced a $1 billion share buyback authorization.
Economic Uncertainty Remains: Agreed that signs of easing inflation have brought some sort of relief for U.S. stock markets but the fact remains that we are far from being out of the woods. Inflation is still above the Federal Reserve’s 2% target. The rise in inflation for December is a cause for concern and has once again dampened investors’ spirits, as they will once again try to gauge the Fed’s next course of action with interest rates. Rising inflation can turn markets more volatile in the coming days. Rising economic uncertainty does not bode well for shipping stocks.
Supply-Chain Disruptions & High Costs: Although economic activities picked up from the pandemic gloom, supply-chain disruptions continue to dent stocks in the industry. Increased operating costs are also limiting bottom-line growth. Costs will likely continue to be steep due to supply-chain troubles.
Zacks Industry Rank Indicates Encouraging Prospects
The Zacks Transportation - Equipment and Leasing industry, housed within the broader Zacks Transportation sector, currently carries a Zacks Industry Rank #14. This rank places it in the top 6% 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 dull 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.
Before we present a few stocks that investors can buy, given their growth prospects, let’s take a look at the industry’s recent stock market performance and current valuation.
Industry Lags S&P 500 But Outperforms Sector
The Zacks Transportation - Equipment and Leasing industry has underperformed the Zacks S&P 500 composite index but outperformed the broader sector over the past year.
Over this period, the industry has gained 16.9% compared with the S&P 500 Index’s northward movement of 20.3%. The broader sector has surged 1.7% in the same timeframe.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month price-to-earnings (P/E- F12M), a commonly used multiple for valuing equipment and leasing stocks, the industry is currently trading at 14.00X, compared with the S&P 500’s 20.56X. It is also below the sector’s P/E (F12) ratio of 15.40X.
Over the past five years, the industry has traded as high as 16.73X, as low as 8.75X and at the median of 12.78X, as the chart below shows.
Wabtec: This Pittsburgh, PA-based company offers technology-based locomotives, equipment, systems, and services for the freight rail and passenger transit industries worldwide. Wabtec’s top-line performance continues to gain from solid growth across both its Freight and Transit segments. While the Freight segment benefits from growth in services and components, the transit segment gains from strong aftermarket sales. Meanwhile, Wabtec’s pro-investor stance, which is evident from its announcements of a 17.6% dividend hike and $1 billion share buyback authorization, looks encouraging.
For 2024, Wabtec expects sales in the $10.05-$10.35 billion band. Adjusted earnings per share for 2024 are estimated to be between $6.50 and $6.90. Management anticipates strong cash flow generation, with operating cash flow conversion exceeding 90%.
Wabtec has an encouraging track record with respect to earnings surprise, having surpassed the Zacks Consensus Estimate in three of the past four quarters (matched the mark in the remaining one). The average beat is 7.11%. The Zacks Consensus Estimate for 2024 earnings has been revised 0.5% upward over the past 90 days.
Price and Consensus: WAB
GATX: Based in Chicago, IL, GATX operates as a railcar leasing company in the United States, Canada, Mexico, Europe, and India.
GATX, which has been paying regular dividends since 1919, holds an impressive record with respect to dividends. Notably, 2024 marks the 106th consecutive year of GATX paying out dividends. GATX anticipates full-year 2024 earnings in the range of $7.30–$7.70 per share. GATX has an encouraging track record with respect to earnings surprise, having surpassed the Zacks Consensus Estimate in three of the last four quarters (missing the mark in the remaining one). The average beat is 16.47%. The Zacks Consensus Estimate for 2024 earnings has been revised 6.1% upward over the past 90 days.
Price and Consensus: GATX
Trinity: Headquartered in Dallas, TX, Trinity provides rail transportation products and services under the TrinityRail name in North America. Trinity is benefiting from its consistent shareholder-friendly initiatives to reward through dividend payments and share repurchases. During the first nine months of 2023, TRN rewarded its shareholders with $64.7 million in dividend payments (did not repurchase any shares during the said time frame). In December 2023, TRN’s board of directors announced a dividend hike of almost 8%, thereby raising its quarterly cash dividend to 28 cents from 26 cents per share.
The Zacks Consensus Estimate for TRN’s 2024 earnings has moved up 3.6% in the past 90 days. Its expected earnings growth rate for 2024 is 63.54%.
Price and Consensus: TRN
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3 Stocks to Buy From the Transport Equipment & Leasing Industry
The Zacks Transportation - Equipment and Leasing industry currently stands to benefit from the solid investor-friendly steps. Notably, consistent shareholder-friendly initiatives in the form of dividend payouts or share buybacks imply solid financial strength of companies in the Equipment and Leasing industry. Such moves boost investors’ confidence and positively impact the bottom line.
On the flip side, the industry continues to grapple withchallenges, ranging from raging inflation, higher interest rates, supply-chain disruptions and high operating costs. The headwinds are likely to hurt the demand for containers.
Nonetheless, we believe that betting on three industry players, namely Westinghouse Air Brake Technologies Corporation, operating as Wabtec Corporation (WAB - Free Report) , GATX Corporation (GATX - Free Report) ) and Trinity Industries, Inc. (TRN - Free Report) ), is a prudent move as they are better positioned to brave multiple industry challenges.
Industry Overview
The Zacks Transportation - Equipment and Leasing industry includes 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, varying from small businesses to large international enterprises. Customers range from a wide variety of industries, the most significant being automotive, electronics, transportation, grocery, lumber and wood products, food service and home furnishing. A few of these companies provide locomotives and technology-based equipment, systems and services to freight rail and passenger transit industries.
3 Key Trends Influencing the Transportation - Equipment and Leasing Industry
Strong Financial Returns for Shareholders: With the resumption of economic activities, many players, including some Transportation - Equipment and Leasing industry players, are reactivating shareholder-friendly measures in the form of dividend payouts and share buybacks, which underline their solid financial footing and confidence in the business.
For example, in January 2024, GATX’s board of directors announced a dividend hike of almost 5.5%, thereby raising its quarterly cash dividend to 58 cents from 55 cents per share. Notably, 2024 marks the 106th consecutive year of GATX paying out dividends.
Wabtec (concurrent with its fourth-quarter 2023 earnings release on Feb 14, 2024) announced a 17.6% dividend increase, thereby raising its quarterly cash dividend to 20 cents from 17 cents per share. Additionally, WAB’s board announced a $1 billion share buyback authorization.
Economic Uncertainty Remains: Agreed that signs of easing inflation have brought some sort of relief for U.S. stock markets but the fact remains that we are far from being out of the woods. Inflation is still above the Federal Reserve’s 2% target. The rise in inflation for December is a cause for concern and has once again dampened investors’ spirits, as they will once again try to gauge the Fed’s next course of action with interest rates. Rising inflation can turn markets more volatile in the coming days. Rising economic uncertainty does not bode well for shipping stocks.
Supply-Chain Disruptions & High Costs: Although economic activities picked up from the pandemic gloom, supply-chain disruptions continue to dent stocks in the industry. Increased operating costs are also limiting bottom-line growth. Costs will likely continue to be steep due to supply-chain troubles.
Zacks Industry Rank Indicates Encouraging Prospects
The Zacks Transportation - Equipment and Leasing industry, housed within the broader Zacks Transportation sector, currently carries a Zacks Industry Rank #14. This rank places it in the top 6% 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 dull 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.
Before we present a few stocks that investors can buy, given their growth prospects, let’s take a look at the industry’s recent stock market performance and current valuation.
Industry Lags S&P 500 But Outperforms Sector
The Zacks Transportation - Equipment and Leasing industry has underperformed the Zacks S&P 500 composite index but outperformed the broader sector over the past year.
Over this period, the industry has gained 16.9% compared with the S&P 500 Index’s northward movement of 20.3%. The broader sector has surged 1.7% in the same timeframe.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month price-to-earnings (P/E- F12M), a commonly used multiple for valuing equipment and leasing stocks, the industry is currently trading at 14.00X, compared with the S&P 500’s 20.56X. It is also below the sector’s P/E (F12) ratio of 15.40X.
Over the past five years, the industry has traded as high as 16.73X, as low as 8.75X and at the median of 12.78X, as the chart below shows.
P/E Ratio (Forward 12-Month)
3 Transport Equipment Leasing Stocks to Buy Now
We are presenting three Zacks Rank #2 (Buy) stocks that are well-positioned to grow in the near term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Wabtec: This Pittsburgh, PA-based company offers technology-based locomotives, equipment, systems, and services for the freight rail and passenger transit industries worldwide. Wabtec’s top-line performance continues to gain from solid growth across both its Freight and Transit segments. While the Freight segment benefits from growth in services and components, the transit segment gains from strong aftermarket sales. Meanwhile, Wabtec’s pro-investor stance, which is evident from its announcements of a 17.6% dividend hike and $1 billion share buyback authorization, looks encouraging.
For 2024, Wabtec expects sales in the $10.05-$10.35 billion band. Adjusted earnings per share for 2024 are estimated to be between $6.50 and $6.90. Management anticipates strong cash flow generation, with operating cash flow conversion exceeding 90%.
Wabtec has an encouraging track record with respect to earnings surprise, having surpassed the Zacks Consensus Estimate in three of the past four quarters (matched the mark in the remaining one). The average beat is 7.11%. The Zacks Consensus Estimate for 2024 earnings has been revised 0.5% upward over the past 90 days.
Price and Consensus: WAB
GATX: Based in Chicago, IL, GATX operates as a railcar leasing company in the United States, Canada, Mexico, Europe, and India.
GATX, which has been paying regular dividends since 1919, holds an impressive record with respect to dividends. Notably, 2024 marks the 106th consecutive year of GATX paying out dividends. GATX anticipates full-year 2024 earnings in the range of $7.30–$7.70 per share. GATX has an encouraging track record with respect to earnings surprise, having surpassed the Zacks Consensus Estimate in three of the last four quarters (missing the mark in the remaining one). The average beat is 16.47%. The Zacks Consensus Estimate for 2024 earnings has been revised 6.1% upward over the past 90 days.
Price and Consensus: GATX
Trinity: Headquartered in Dallas, TX, Trinity provides rail transportation products and services under the TrinityRail name in North America. Trinity is benefiting from its consistent shareholder-friendly initiatives to reward through dividend payments and share repurchases. During the first nine months of 2023, TRN rewarded its shareholders with $64.7 million in dividend payments (did not repurchase any shares during the said time frame). In December 2023, TRN’s board of directors announced a dividend hike of almost 8%, thereby raising its quarterly cash dividend to 28 cents from 26 cents per share.
The Zacks Consensus Estimate for TRN’s 2024 earnings has moved up 3.6% in the past 90 days. Its expected earnings growth rate for 2024 is 63.54%.
Price and Consensus: TRN