Shares of CAI International Inc. (CAP) have jumped nearly 86% since October 2011. Despite facing an extremely volatile industry, this lessor and manager of shipping containers was able to maintain profitability and generate free cash flow. CAIs sizeable proportion of long-term leases are the reasons behind its financial stability.
Continued growth in international trade and the ongoing shift to container leasing are providing lucrative business opportunities for CAI. With a forward P/E multiple of just 6.32, this Zacks #1 Rank (Strong Buy) stock is an attractive pick for value investors.
Modest Second Quarter
On July 23, CAI reported second-quarter 2012 adjusted earnings of 67 cents per share, up an impressive 21.8% year over year but below the Zacks Consensus Estimate by 5.6%. Similarly, total revenue of a little over $39.7 million was up 38.1% year over year but down 2.3% from the Zacks Consensus Estimate. CAI improved margins across the board. Operating margin was 61.3% and net income margin was 38.1%, compared with 58.85 and 37.8%, respectively, in the year-ago quarter.
As of June 30, 2012, CAIs own fleet accounted for 56% of its total fleet, compared with 47% in the prior-year quarter. The remaining 44% is comprised of third party containers managed by the company. Overall fleet utilization during the quarter was around 95% and long-term lease accounted for nearly 88% of total leases.
Although management did not provide specific financial guidance, it remains very optimistic about container demand for the rest of 2012 and full year 2013. Shipping lines are gradually moving towards container leasing, which will in turn raise overall shipping rates, including the long-term lease rates. In the last quarter, the company purchased 1,200 used railcars, which will have a positive impact on its financials. All these railcars are currently on lease with an average lease term of 3 years.
Earnings Momentum Climbing
In the last seven days, three of six earnings estimates for 2012 moved higher, lifting the Zacks Consensus Estimate by over 2.2% to $3.19. This implies year-over-year profit improvement of nearly 51.8%.
CAI also witnessed three of six estimates move higher for 2013, boosting the Zacks Consensus Estimate by around 4.6% to $3.67. This suggests year-over-year profit improvement of 15.3%.
CAIs shares have witnessed a secular uptrend since October 2011, except for some minor pullbacks. Going forward, there is an untapped potential in the stock. This is evidenced by its current forward P/E multiple of 6.32 and P/B multiple of 1.39 (a P/E ratio below 15.0 and a P/B ratio under 3.0 generally indicate value). Additionally, the trailing 12-month ROE of CAI is 18.7%, which is a substantial 128.1% higher than the peer group average of 8.2%.
Year-to-date, the stock has returned 26.8%, significantly outpacing the benchmark S&P 500 return of a mere 7.7%. The widening gap between the stock price line and that of 2012 and 2013 estimate lines indicate that CAI is currently undervalued.
CAI International Inc. was founded in 1989 and is headquartered in San Francisco. Formerly known as Container Applications International Inc., the company changed its name to CAI International in 2007. At present, it is the sixth largest intermodal marine cargo leasing and managing company globally. As of June 30, 2012, CAI operated a worldwide fleet of 1,006,783 TEUs (20-foot equivalent units) of containers through 14 offices located in 11 countries including the U.S.