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Transport Equipment & Leasing Outlook: Any Respite From Coronavirus?
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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.
Let’s take a look at the industry’s three major themes:
Due to the capital-intensive nature of this business, most industry participants carry a lot of debt burden. For instance, Air Lease Corporation (AL - Free Report) , GATX Corporation (GATX - Free Report) and Ryder System (R - Free Report) have a debt-to-equity (expressed as a percentage) ratio of more than 200. A high debt-to-equity ratio implies that the companies are funding most of their ventures with debt, which can be detrimental to their financial health.
Reduced business activities in the United States as well as a global economic slowdown caused by the coronavirus outbreak are taking a significant toll on the industry. Since the worldwide downturn has affected almost all businesses, a large number of companies are limiting capital investments to cope with this crisis, which in turn is weighing on lease demand. Evidently, Ryder is witnessing softness in volumes as a result of production shutdowns in the automotive industry. The company is also seeing weak demand for some of its commercial rental trucks and used vehicles. Ryder expects the adversities to persist at least through the second quarter.
To combat this challenging scenario, the industry participants are trying to preserve cash by controlling costs and reducing capital expenses. Ryder for instance, is focusing on reducing capital expenditures by cancelling new vehicle orders and delaying a few others. Additionally, the company is reducing overhead costs and discretionary spending to improve bottom line and increase free cash flow. As for liquidity, the company maintains a $1.4 billion global revolving credit facility, expiring September 2023. In order to enhance its liquidity position, Ryder issued $400 million of senior unsecured medium-term notes due June 2025. Proceeds from the transaction, will be used for working capital and other general corporate purposes. Another company with a substantial amount of liquidity is Air Lease, which has $6 billion in unutilized lines of credit and cash as well as $20 billion in unencumbered assets.
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 #205. This rank places it at the bottom 19% 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 declined 28.2% since April 2019.
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 Underperforms Sector & S&P 500
The Zacks Transportation - Equipment and Leasing industry has underperformed both the broader Transportation sector and the Zacks S&P 500 composite over the past year.
Over this period, the industry has plunged 33% compared with the broader sector and S&P 500 Index’s decline of 24.4% and 4.2%, 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 9.64X compared with the S&P 500’s 19.83X. It is also below the sector’s P/E (F12) ratio of 22.57X.
Over the past five years, the industry has traded as high as 16.77X, as low as 8.4X and at the median of 12.21X as the chart below shows.
Forward Price/Earnings (F12M) Ratio
Forward Price/Earnings (F12M) Ratio
Bottom Line
As uncertainty looms over the duration of coronavirus, chances are that the business environment will worsen for the transport equipment and leasing companies. Cost cuts and a good liquidity position should help these players better deal with the crisis. On the whole, the industry’s near-term outlook seems bleak unless there is some improvement in the massive economic downturn.
While Triton International Limited carries a Zacks Rank #2, Westinghouse Air Brake Technologies Corporation (WAB - Free Report) , operating as Wabtec Corporation, Trinity Industries, Inc. (TRN - Free Report) and Ryder carry a Zacks Rank of 3.
Just Released: Zacks’ 7 Best Stocks for Today
Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.1% per year.
These 7 were selected because of their superior potential for immediate breakout.
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Transport Equipment & Leasing Outlook: Any Respite From Coronavirus?
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.
Let’s take a look at the industry’s three major themes:
Due to the capital-intensive nature of this business, most industry participants carry a lot of debt burden. For instance, Air Lease Corporation (AL - Free Report) , GATX Corporation (GATX - Free Report) and Ryder System (R - Free Report) have a debt-to-equity (expressed as a percentage) ratio of more than 200. A high debt-to-equity ratio implies that the companies are funding most of their ventures with debt, which can be detrimental to their financial health.
Reduced business activities in the United States as well as a global economic slowdown caused by the coronavirus outbreak are taking a significant toll on the industry. Since the worldwide downturn has affected almost all businesses, a large number of companies are limiting capital investments to cope with this crisis, which in turn is weighing on lease demand. Evidently, Ryder is witnessing softness in volumes as a result of production shutdowns in the automotive industry. The company is also seeing weak demand for some of its commercial rental trucks and used vehicles. Ryder expects the adversities to persist at least through the second quarter.
To combat this challenging scenario, the industry participants are trying to preserve cash by controlling costs and reducing capital expenses. Ryder for instance, is focusing on reducing capital expenditures by cancelling new vehicle orders and delaying a few others. Additionally, the company is reducing overhead costs and discretionary spending to improve bottom line and increase free cash flow. As for liquidity, the company maintains a $1.4 billion global revolving credit facility, expiring September 2023. In order to enhance its liquidity position, Ryder issued $400 million of senior unsecured medium-term notes due June 2025. Proceeds from the transaction, will be used for working capital and other general corporate purposes. Another company with a substantial amount of liquidity is Air Lease, which has $6 billion in unutilized lines of credit and cash as well as $20 billion in unencumbered assets.
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 #205. This rank places it at the bottom 19% 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 declined 28.2% since April 2019.
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 Underperforms Sector & S&P 500
The Zacks Transportation - Equipment and Leasing industry has underperformed both the broader Transportation sector and the Zacks S&P 500 composite over the past year.
Over this period, the industry has plunged 33% compared with the broader sector and S&P 500 Index’s decline of 24.4% and 4.2%, 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 9.64X compared with the S&P 500’s 19.83X. It is also below the sector’s P/E (F12) ratio of 22.57X.
Over the past five years, the industry has traded as high as 16.77X, as low as 8.4X and at the median of 12.21X as the chart below shows.
Forward Price/Earnings (F12M) Ratio
Forward Price/Earnings (F12M) Ratio
Bottom Line
As uncertainty looms over the duration of coronavirus, chances are that the business environment will worsen for the transport equipment and leasing companies. Cost cuts and a good liquidity position should help these players better deal with the crisis. On the whole, the industry’s near-term outlook seems bleak unless there is some improvement in the massive economic downturn.
Below we present one stock with a Zacks Rank #2 (Buy) and three more stocks with a Zacks Rank #3 (Hold) that you may retain in your portfolio. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
While Triton International Limited carries a Zacks Rank #2, Westinghouse Air Brake Technologies Corporation (WAB - Free Report) , operating as Wabtec Corporation, Trinity Industries, Inc. (TRN - Free Report) and Ryder carry a Zacks Rank of 3.
Just Released: Zacks’ 7 Best Stocks for Today
Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.1% per year.
These 7 were selected because of their superior potential for immediate breakout.
See these time-sensitive tickers now >>