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3 Transport Equipment & Leasing Stocks Worth a Closer Look
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Stocks in the Zacks Transportation - Equipment and Leasing industry are being well-served by impressive trade volumes and upbeat container demand. The moderating inflation and the resultant slowdown in interest rate hikes also bode well. Stocks like Ryder System (R - Free Report) , Triton International and Trinity Industries (TRN - Free Report) are well poised to gain from this improving scenario. However, high operating costs act as a major deterrent.
Industry Overview
The Zacks Transportation - Equipment and Leasing industry houses 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 logistics and transportation solutions, such as vehicles, drivers, management and administrative services. Most industry participants offer fleet management solutions and serve customers varying from small businesses to large international enterprises. Customers range from a wide variety of industries, the most significant being automotive, electronics, transportation, grocery, lumber and wood products, food service and home furnishing. A few of these companies provide locomotives, plus value-added and technology-based equipment, systems and services to freight rail and passenger transit industries.
Factors Shaping the Future of the Transport Equipment & Leasing Industry
Strong Financial Returns for Shareholders: With economic activities gaining pace, more and more companies are allocating their increasing cash pile by way of dividends and buybacks to pacify the long-suffering shareholders, thereby underlining their financial strength and confidence in business. Among the Transportation - Equipment and Leasing industry players, Trinity announced a 13% hike in its quarterly dividend in December 2022, taking the total of its quarterly dividend payout to 26 cents per share. TRN’s management also cleared a new buyback program worth $250 million.
Slowdown in Interest Rate Hikes Bode Well: Inflation in the United States moderated for the second successive month in November. With inflation coming down, the Fed scaled back its rate hike to 50 basis points, following four back-to-back increases of 75 basis points each. This scale-back has provided a much-needed respite to the economy. The slowdown in interest rate hike is a positive sign for the industry as increasing interest rates increase finance costs and potentially weaken borrowing and lending activities.
Healthy Equipment and Lease Demand: With economic activities picking up, trading volumes are increasing. This led to an uptick in consumer demand, further resulting in a favorable scenario in relation to equipment and lease demand. An increase in demand for railcars is driving the growth of railcar lessors, while intermodal container lessors are benefiting from an improvement in trade volumes and container demand. The healthy demand scenario should continue serving the industry participants well.
Bottom Line Suffers Due to Oil Price Increase: Even though oil price declined from their multi-year highs due to recession fears, it remains high. Notably, oil prices increased 5.7% in the first nine months of 2022, induced by the Russia-Ukraine war. Fuel expenses represent a key input cost for any transportation player. Naturally, operating expenses are on the way up, mainly due to the uptick in fuel costs. For example, at Triton International, operating costs increased 5.6% year over year in the first nine months of 2022.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Transportation - Equipment and Leasing industry, housed within the broader Transportation sector, currently carries a Zacks Industry Rank #90. This rank places it in the top 36% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates solid 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 position in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are highly optimistic about this group’s earnings growth potential. The industry’s earnings estimate for 2023 has increased 14.5% over the past year.
Considering the encouraging prospects of the industry, we present a few stocks worth considering for your portfolio. But it’s worth looking at the industry’s shareholder returns and its current valuation first.
Industry Outperforms S&P 500 but Underperforms Sector
The Zacks Transportation - Equipment and Leasing industry has outperformed the Zacks S&P 500 composite index over the past year.
Over this period, the industry has declined 17.3% compared with the S&P 500 Index’s southward movement of 21.3%. The broader sector has declined 2.7% in the same timeframe.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month price-to-earnings (P/E), a commonly used multiple for valuing equipment and leasing stocks, the industry is currently trading at 10.95X, compared with the S&P 500’s 17.12X. It is also below the sector’s P/E (F12) ratio of 13.69X.
Over the past five years, the industry has traded as high as 17.16X, as low as 8.77X and at the median of 12.91X as the chart below shows.
P/E Ratio (Forward 12-Month)
3 Transport Equipment Leasing Stocks to Keep a Tab On
Ryder: Miami, FL-based Ryder provides integrated logistics and transportation solutions. With improved economic and freight market conditions, R is benefiting from higher rental revenues owing to strong demand and favorable pricing. Ryder’s acquisitions of Whiplash and Midwest Warehouse & Distribution System expand its e-commerce fulfillment network and boost multi-client warehousing capabilities. The transactions are expected to drive growth in the supply-chain solutions segment.
Ryder currently carries a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for R’s 2022 earnings has been revised 6.9% upward in the past 60 days.
Triton International: Based in Hamilton, Bermuda, Triton is the largest lessor of intermodal containers (large steel boxes that are used for transporting freight by ship/rail/truck). TRTN also focuses on leasing chassis, which are used for transporting containers. Gradual increases in trade volumes and container demand bode well for TRTN.
Triton currently carries a Zacks Rank #3. TRTN has an impressive history with respect to earnings surprise, having surpassed the Zacks Consensus Estimate in each of the last four quarters. The average beat is 6.1%.
Price and Consensus: TRTN
Trinity: Based in Dallas, TX, Trinity owns market-leading businesses offering rail transportation products and services in North America. Improved railcar demand should boost TRN’s prospects. Cost-control measures are expected to continue boosting TRN’s bottom line.
Trinity’s commitment to rewarding its shareholders indicates its financial prosperity. TRN currently carries a Zacks Rank #3. The Zacks Consensus Estimate for current-year earnings has been revised 1% upward over the past 60 days.
Price and Consensus: TRN
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3 Transport Equipment & Leasing Stocks Worth a Closer Look
Stocks in the Zacks Transportation - Equipment and Leasing industry are being well-served by impressive trade volumes and upbeat container demand. The moderating inflation and the resultant slowdown in interest rate hikes also bode well. Stocks like Ryder System (R - Free Report) , Triton International and Trinity Industries (TRN - Free Report) are well poised to gain from this improving scenario. However, high operating costs act as a major deterrent.
Industry Overview
The Zacks Transportation - Equipment and Leasing industry houses 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 logistics and transportation solutions, such as vehicles, drivers, management and administrative services. Most industry participants offer fleet management solutions and serve customers varying from small businesses to large international enterprises. Customers range from a wide variety of industries, the most significant being automotive, electronics, transportation, grocery, lumber and wood products, food service and home furnishing. A few of these companies provide locomotives, plus value-added and technology-based equipment, systems and services to freight rail and passenger transit industries.
Factors Shaping the Future of the Transport Equipment & Leasing Industry
Strong Financial Returns for Shareholders: With economic activities gaining pace, more and more companies are allocating their increasing cash pile by way of dividends and buybacks to pacify the long-suffering shareholders, thereby underlining their financial strength and confidence in business. Among the Transportation - Equipment and Leasing industry players, Trinity announced a 13% hike in its quarterly dividend in December 2022, taking the total of its quarterly dividend payout to 26 cents per share. TRN’s management also cleared a new buyback program worth $250 million.
Slowdown in Interest Rate Hikes Bode Well: Inflation in the United States moderated for the second successive month in November. With inflation coming down, the Fed scaled back its rate hike to 50 basis points, following four back-to-back increases of 75 basis points each. This scale-back has provided a much-needed respite to the economy. The slowdown in interest rate hike is a positive sign for the industry as increasing interest rates increase finance costs and potentially weaken borrowing and lending activities.
Healthy Equipment and Lease Demand: With economic activities picking up, trading volumes are increasing. This led to an uptick in consumer demand, further resulting in a favorable scenario in relation to equipment and lease demand. An increase in demand for railcars is driving the growth of railcar lessors, while intermodal container lessors are benefiting from an improvement in trade volumes and container demand. The healthy demand scenario should continue serving the industry participants well.
Bottom Line Suffers Due to Oil Price Increase: Even though oil price declined from their multi-year highs due to recession fears, it remains high. Notably, oil prices increased 5.7% in the first nine months of 2022, induced by the Russia-Ukraine war. Fuel expenses represent a key input cost for any transportation player. Naturally, operating expenses are on the way up, mainly due to the uptick in fuel costs. For example, at Triton International, operating costs increased 5.6% year over year in the first nine months of 2022.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Transportation - Equipment and Leasing industry, housed within the broader Transportation sector, currently carries a Zacks Industry Rank #90. This rank places it in the top 36% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates solid 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 position in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are highly optimistic about this group’s earnings growth potential. The industry’s earnings estimate for 2023 has increased 14.5% over the past year.
Considering the encouraging prospects of the industry, we present a few stocks worth considering for your portfolio. But it’s worth looking at the industry’s shareholder returns and its current valuation first.
Industry Outperforms S&P 500 but Underperforms Sector
The Zacks Transportation - Equipment and Leasing industry has outperformed the Zacks S&P 500 composite index over the past year.
Over this period, the industry has declined 17.3% compared with the S&P 500 Index’s southward movement of 21.3%. The broader sector has declined 2.7% in the same timeframe.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month price-to-earnings (P/E), a commonly used multiple for valuing equipment and leasing stocks, the industry is currently trading at 10.95X, compared with the S&P 500’s 17.12X. It is also below the sector’s P/E (F12) ratio of 13.69X.
Over the past five years, the industry has traded as high as 17.16X, as low as 8.77X and at the median of 12.91X as the chart below shows.
P/E Ratio (Forward 12-Month)
3 Transport Equipment Leasing Stocks to Keep a Tab On
Ryder: Miami, FL-based Ryder provides integrated logistics and transportation solutions. With improved economic and freight market conditions, R is benefiting from higher rental revenues owing to strong demand and favorable pricing. Ryder’s acquisitions of Whiplash and Midwest Warehouse & Distribution System expand its e-commerce fulfillment network and boost multi-client warehousing capabilities. The transactions are expected to drive growth in the supply-chain solutions segment.
Ryder currently carries a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for R’s 2022 earnings has been revised 6.9% upward in the past 60 days.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
Price and Consensus: R
Triton International: Based in Hamilton, Bermuda, Triton is the largest lessor of intermodal containers (large steel boxes that are used for transporting freight by ship/rail/truck). TRTN also focuses on leasing chassis, which are used for transporting containers. Gradual increases in trade volumes and container demand bode well for TRTN.
Triton currently carries a Zacks Rank #3. TRTN has an impressive history with respect to earnings surprise, having surpassed the Zacks Consensus Estimate in each of the last four quarters. The average beat is 6.1%.
Price and Consensus: TRTN
Trinity: Based in Dallas, TX, Trinity owns market-leading businesses offering rail transportation products and services in North America. Improved railcar demand should boost TRN’s prospects. Cost-control measures are expected to continue boosting TRN’s bottom line.
Trinity’s commitment to rewarding its shareholders indicates its financial prosperity. TRN currently carries a Zacks Rank #3. The Zacks Consensus Estimate for current-year earnings has been revised 1% upward over the past 60 days.
Price and Consensus: TRN