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Triton's Strong on cash flow generation Amid High Debts

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We recently issued an updated report on Triton International Limited .Factors like solid cash flow generation are encouraging. Meanwhile, headwinds like escalated debt levels amid coronavirus-led concerns are major challenges for Triton.

Triton’s strong cash flow generation capacity looks impressive. Notably, net cash provided by operating activities increased to $1.06 billion at the end of fourth-quarter 2019 compared with $994.22 million in the year-ago quarter. Such values indicate that the company possesses an adequate amount of cash to meet its financial obligations.

 

Triton International’s trailing 12-month return on equity (ROE) supports its growth potential. The company’s ROE of 16.4% compares favorably with the industry’s average of 8.8%. This implies that the company is efficient in utilizing shareholders’ funds.

However, though the market conditions were improving in 2020 following the phase one trade deal (signed in January), the outbreak of the coronavirus dashed all hopes. The company now expects a delay in the realization of benefits from the trade deal. Notably, it anticipates travel disruptions from the COVID-19 outbreak to weaken factory output and contract export volumes from China. In fact, the company’s first-quarter performance is likely to be affected by seasonal sluggishness and higher selling, general and administrative expenses. Reduced lease rates are also expected to hurt results in the period.

Triton International is a highly-leveraged company. This is indicated by the fact that the ratio of its long-term debt-to-equity (expressed as a percentage) is currently more than 300. This compares unfavorably to the industry's high average. A high debt-to-equity ratio implies that the company is funding most of its ventures with borrowings.

Zacks Rank and Stocks to consider

Currently, Triton International carry a Zacks Rank #3 (Hold).

Investors interested in the Zacks Transportation sector may consider the likes of GATX Corporation (GATX - Free Report) , Spirit Airlines, Inc. (SAVE - Free Report) and Höegh LNG Partners LP . GATX sports a Zacks Rank #1 (Strong Buy), whereas Spirit and Höegh LNG carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term (three to five years) expected earnings per share growth rate for GATX, Spirit and Höegh LNG is pegged at 15%, 12.5% and 8.5% respectively.

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