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Transport Equipment & Leasing Stock Outlook: Bleak Near Term
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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 transportation solutions, such as vehicles, drivers, management and administrative services. Most industry participants offer fleet management solutions.
Prominent industry players include Westinghouse Air Brake Technologies Corporation (WAB - Free Report) , a leading provider of value-added and technology-based equipment and services, integrated logistics and transportation solutions leader Ryder System (R - Free Report) and intermodal container lessor Triton International Limited .
Let’s take a look at the industry’s three major themes:
The U.S.-China trade tensions and the weak global economy took a significant toll on lease demand and in turn affected profit margins of companies. This downturn having started since the beginning of 2019, only worsened as the trade war prolonged. Triton International persistently battled low container pick-up volumes due to the trade tussle and a global economic slowdown. This sluggishness hurt the company’s third-quarter earnings to the tune of approximately $7 million. Although the trade tiff seems to be easing now with a phase one trade deal recently reached between the United States and China, the industry is likely to remain under pressure unless the dispute is fully resolved.
These companies usually carry a lot of debt burden. A heavy debt load in the face of a downslide is a further setback for the industry participants. Companies like Air Lease (AL - Free Report) , GATX Corporation (GATX - Free Report) and Ryder have a debt-to-equity (expressed as a percentage) ratio of more than 200. A high debt-to-equity ratio implies that the company is funding most of its ventures with debt.
The industry stands to benefit from rising consumer spending amid tight labor market conditions and low interest rates. Low interest rates indicate an increase in consumer spending in general, which in turn, results in an uptick in lending and borrowing activities. In this regard, the possibility of the Fed keeping interest rates fixed next year is a positive for the industry.
Zacks Industry Rank Indicates Weak Prospects
The Zacks Transportation - Equipment and Leasing industry, housed within the broader Transportation sector, currently carries a Zacks Industry Rank #242. This rank places it at the bottom 4% 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, suggests discouraging 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 bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. The group’s current-year EPS estimate has decreased 2.8% since December 2018.
Despite the industry’s bleak near-term view, we will present a few noteworthy stocks for your portfolio. But before that, it’s worth taking a look at the industry’s shareholder returns and current valuation.
Industry Outperforms Sector & S&P 500
The Zacks Transportation - Equipment and Leasing industry has surpassed both the broader Transportation sector and the Zacks S&P 500 composite over the past year.
Over this period, the industry has gained 38.6% compared with the broader sector and S&P 500 Index’s rise of 24.2% and 35.7%, respectively.
One-Year Price Performance
Industry’s Current Valuation
On the basis of forward P/E (F12M) ratio, which is a commonly used multiple for valuing equipment and leasing stocks, the industry is currently trading at 13.52X compared with the S&P 500’s 18.66X. It is, however, above the sector’s P/E (F12) ratio of 13.1X.
Over the past five years, the industry has traded as high as 16.22X, as low as 8.63X and at the median of 12.37X as the chart below shows.
Forward Price/Earnings (F12M) Ratio
Forward Price/Earnings (F12M) Ratio
Bottom Line
Rising consumer spending and low interest rates are a boon to the industry and should drive growth. However, a sluggish global economy and the trade spat weighed heavily on the industry and a turnaround is unlikely anytime soon unless the trade war is fully resolved.
Below we present one stock with a Zacks Rank #2 (Buy) that is poised to grow notwithstanding challenges. We also present two stocks with a Zacks Rank #3 (Hold) that you can retain in your portfolio. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
GATX is a Chicago, IL-based company which leases, operates and manages long-lasting, widely used assets in rail, marine and industrial equipment markets. The company carrying a Zacks Rank of 2, has an impressive earnings history, having outperformed the Zacks Consensus Estimate in each of the trailing four quarters, the average being 16.1%. Shares of the company have rallied 24.4% in a year’s time.
Price and Consensus: GATX
Herc Holdings Inc. (HRI - Free Report) provides equipment rental suppliers, primarily in North America through its subsidiary Herc Rentals Inc. The company carries a Zacks Rank of 3 and the Zacks Consensus Estimate for its 2020 earnings has been revised upward by 2 cents in the past 60 days. Shares of the company have skyrocketed more than 100% in a year’s time.
Price and Consensus: HRI
Air Lease is a leading aircraft leasing company based in Los Angeles, CA. The company is a #3 Ranked player and has an impressive earnings history, having trumped the Zacks Consensus Estimate in three of the last four quarters, the average beat being 3.6%. Shares of the company have surged 67.4% in a year’s time.
Price and Consensus: AL
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Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
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Transport Equipment & Leasing Stock Outlook: Bleak Near Term
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 transportation solutions, such as vehicles, drivers, management and administrative services. Most industry participants offer fleet management solutions.
Prominent industry players include Westinghouse Air Brake Technologies Corporation (WAB - Free Report) , a leading provider of value-added and technology-based equipment and services, integrated logistics and transportation solutions leader Ryder System (R - Free Report) and intermodal container lessor Triton International Limited .
Let’s take a look at the industry’s three major themes:
Zacks Industry Rank Indicates Weak Prospects
The Zacks Transportation - Equipment and Leasing industry, housed within the broader Transportation sector, currently carries a Zacks Industry Rank #242. This rank places it at the bottom 4% 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, suggests discouraging 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 bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. The group’s current-year EPS estimate has decreased 2.8% since December 2018.
Despite the industry’s bleak near-term view, we will present a few noteworthy stocks for your portfolio. But before that, it’s worth taking a look at the industry’s shareholder returns and current valuation.
Industry Outperforms Sector & S&P 500
The Zacks Transportation - Equipment and Leasing industry has surpassed both the broader Transportation sector and the Zacks S&P 500 composite over the past year.
Over this period, the industry has gained 38.6% compared with the broader sector and S&P 500 Index’s rise of 24.2% and 35.7%, respectively.
One-Year Price Performance
Industry’s Current Valuation
On the basis of forward P/E (F12M) ratio, which is a commonly used multiple for valuing equipment and leasing stocks, the industry is currently trading at 13.52X compared with the S&P 500’s 18.66X. It is, however, above the sector’s P/E (F12) ratio of 13.1X.
Over the past five years, the industry has traded as high as 16.22X, as low as 8.63X and at the median of 12.37X as the chart below shows.
Forward Price/Earnings (F12M) Ratio
Forward Price/Earnings (F12M) Ratio
Bottom Line
Rising consumer spending and low interest rates are a boon to the industry and should drive growth. However, a sluggish global economy and the trade spat weighed heavily on the industry and a turnaround is unlikely anytime soon unless the trade war is fully resolved.
Below we present one stock with a Zacks Rank #2 (Buy) that is poised to grow notwithstanding challenges. We also present two stocks with a Zacks Rank #3 (Hold) that you can retain in your portfolio. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
GATX is a Chicago, IL-based company which leases, operates and manages long-lasting, widely used assets in rail, marine and industrial equipment markets. The company carrying a Zacks Rank of 2, has an impressive earnings history, having outperformed the Zacks Consensus Estimate in each of the trailing four quarters, the average being 16.1%. Shares of the company have rallied 24.4% in a year’s time.
Price and Consensus: GATX
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Herc Holdings Inc. (HRI - Free Report) provides equipment rental suppliers, primarily in North America through its subsidiary Herc Rentals Inc. The company carries a Zacks Rank of 3 and the Zacks Consensus Estimate for its 2020 earnings has been revised upward by 2 cents in the past 60 days. Shares of the company have skyrocketed more than 100% in a year’s time.
Price and Consensus: HRI
Air Lease is a leading aircraft leasing company based in Los Angeles, CA. The company is a #3 Ranked player and has an impressive earnings history, having trumped the Zacks Consensus Estimate in three of the last four quarters, the average beat being 3.6%. Shares of the company have surged 67.4% in a year’s time.
Price and Consensus: AL
The Hottest Tech Mega-Trend of All
Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>