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Earnings Preview: GATX Corp.

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GATX Corporation , a leader in leasing transportation assets, is all set to unveil its third-quarter 2012 results on Thursday, October 18, 2012, before the opening bell. The current Zacks Consensus Estimate for the third quarter is pegged at 66 cents per share, representing an annualized decline of 2.09%.

With respect to earnings surprises, GATX Corp. has outperformed the Zacks Consensus Estimate in the trailing four quarters with an average earnings surprise of 23.58%.

Second Quarter Recap

On July 19, 2012, GATX reported its second-quarter 2012 financial results. Quarterly adjusted earnings of 80 cents per share were well ahead of the Zacks Consensus Estimate of 61 cents and also shot up 86% from 43 cents per share in the year-ago quarter. This upside was primarily driven by higher lease rates, better asset utilization and improvement in lease terms along with higher demand for locomotives.

Revenues for the second quarter increased 9% year over year to $343 million and surpassed the Zacks Consensus Estimate of $338 million, aided by lease rates, North American fleet utilization and growth in the lease period.

Agreement of Estimate Revisions

Over the last 30 days, none out of the five analysts covering the stock revised their EPS estimates for the third and fourth quarter of 2012.

For fiscal 2012, in the last 30 days, none of the four analysts covering the stock changed their EPS estimates. Likewise, for fiscal 2013, none out of the five analysts covering the stock revised their EPS estimates.

Magnitude of Estimate Revisions

For the third and fourth quarter of 2012, over the last 30 days, the current Zacks Consensus Estimate was in line with the previous estimates of 66 and 64 cents, respectively. Similarly, for fiscal 2012 and 2013, the current Zacks Consensus Estimates were flat with the earlier estimates of $2.78 and $3.22, respectively.

Earning Surprises

In the previous quarter, GATX Corp. reported EPS of 80 cents, which beat the Zacks Consensus Estimate by a huge margin of 19 cents. The current Zacks Consensus Estimates for the ongoing quarter and the upcoming quarter contain upside potential of 0.00%, respectively (essentially a proxy for future earning surprises). Likewise, for fiscal 2012 and 2013, the Zacks Consensus Estimate contains growth potential of 0.00%, respectively.

Our Recommendation

We expect GATX Corp. to benefit from higher lease rates and increased asset utilization and remarketing opportunities. The company’s segments remain poised to deliver strong results given improvements in underlying market fundamentals.

Furthermore, expansion of the company’s asset base to enhance its long-term performance as well as paying higher returns to shareholders through dividend payments bode well for increased market traction. However, regulatory pressures and competitive threats from carriers like J.B. Hunt Transport Services (JBHT - Free Report) compel us to remain cautious on the stock.

We currently have a long-term Neutral recommendation on GATX. However, for the short term (1-3 months), the stock has a Zacks #3 Rank (Hold).

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