Shares of Triton International Limited (TRTN - Free Report) have gained 17.4% in a year’s time, outperforming the industry’s 14.5% rally.
Reasons Behind the Uptick
Triton International’s efforts to reward its shareholders through dividend payments are encouraging. Evidently, in May 2018, the company raised its quarterly dividend by 15% to 52 cents per share (annualized $2.08). In the first quarter of 2018, it paid approximately $36 million in dividends, reflecting an increase of 8.5% year over year. Also, the company’s strong cash flow generation is commendable.
Furthermore, Triton International’s initiatives to grow its fleet appear promising. The new tax law is an added positive for the company. In fact, reduction in effective tax rate due to the new law led to bottom-line growth in the first quarter.
We believe the new tax law is a blessing not only for Triton International, but all Transportation companies. This is because the huge savings induced by the new law might result in an uptick in these shareholder-friendly activities. Other transportation stocks like Southwest Airlines Co. (LUV - Free Report) , Canadian Pacific Railway Ltd. (CP - Free Report) and Expeditors International of Washington, Inc. (EXPD - Free Report) also raised dividend payouts recently owing to the new tax law.
Notably, a majority of Triton International’s revenues is derived from its equipment leasing unit. Most of its leasing revenues are generated from international containers. To this end, the metric increased a respective 13.8% and 20.3% in the Asian and European markets in the first quarter.
We are also impressed by the company's efforts to grow its fleet (CAGR of 8.2% over the 2005-2017 period). Also, the Zacks Consensus Estimate for second-quarter earnings moved north to the tune of 7.1% over the last 60 days, reflecting positive sentiment surrounding the stock.
The company’s outlook for the rest of 2018 is impressive. It expects gradual increase in adjusted net income for the current year. Meanwhile, demand for the company’s containers is anticipated to remain high, thus boosting growth. Favorable market conditions should also drive results in the remaining quarters of 2018.
At its Investor Day on May 31, the company stated that it expects the bottom line to grow moderately in the remainder of the year. Asset growth for 2018 is projected between 7% and 10%. Cash flow before capex is expected to exceed 80% of leasing revenues.
Other Favorable Readings
Triton International's trailing 12-month return on equity (ROE) supports its growth potential. The company’s ROE of 12.3% compares favorably with ROE of 8.8% for its industry. This reflects the fact that it is efficient in using shareholders’ funds. Also, Triton International is attractively valued.
Going by the EV by EBITDA ratio, the stock doesn’t look expensive at this point. The measure for the stock is 8.6, which is favorable compared with the S&P 500's 11.4. The stock’s favorable positioning compared to the broader market certainly signals more upside.
Additionally, the stock has a VGM Score of A, which highlights its attractiveness. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores.
Such a score allows investors to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score.
Undoubtedly, the above positives substantiate the company’s Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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