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3 Stocks to Watch From the Transport Equipment & Leasing Industry
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The Zacks Transportation - Equipment and Leasing industry is facing challenges, ranging from raging inflation, higher interest rates, supply-chain disruptions and high operating costs. The headwinds are likely to hurt the demand for containers.
Nonetheless, we believe that betting on three industry players, namely Westinghouse Air Brake Technologies Corporation, operating as Wabtec Corporation (WAB - Free Report) , Ryder System (R - Free Report) and GATX Corporation (GATX - Free Report) ), is a prudent move as they are better positioned to brave multiple industry challenges.
Industry Overview
The Zacks Transportation - Equipment and Leasing industry includes 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 and technology-based equipment, systems and services to freight rail and passenger transit industries.
3 Key Trends Influencing the Transportation - Equipment and Leasing Industry
Strong Financial Returns for Shareholders: With economic activities gaining pace from the pandemic lows, 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, Ryder announced a 14.5% hike in its quarterly dividend, taking the total to 71 cents per share (annualized $2.84) in July 2023.
Economic Uncertainty Remains: Though easing inflation has brought some relief to U.S. stock markets, the fact remains that we are far from being out of the woods. Though the Fed did not hike interest rates in September, Fed chair Jerome Powell said that the fight against inflation is far from over and that at least another quarter percentage interest rate hike is required in the current year. Sluggish economic growth and inflationary woes are likely to hurt consumer spending for the remainder of 2023.
Supply-Chain Disruptions & High Costs: Although economic activities picked up from the pandemic gloom, supply-chain disruptions continue to dent stocks in the industry. Increased operating costs are also limiting bottom-line growth. Costs will likely continue to be steep due to supply-chain troubles.
Zacks Industry Rank Indicates Gloomy Prospects
The Zacks Transportation - Equipment and Leasing industry, housed within the broader Zacks Transportation sector, currently carries a Zacks Industry Rank #151. This rank places it in the bottom 40% 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, indicates dull 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 sell-side analysts covering the companies in this industry have been decreasing their estimates. Over the past year, the industry’s consensus earnings estimate for the current year has decreased 3.6%.
Despite the cloudy prospects, we present a few stocks that investors can buy or retain, given their sturdy potential. But before that, let’s take a look at the industry’s recent stock market performance and its current valuation.
Industry Lags S&P 500 But Outperforms Sector
The Zacks Transportation - Equipment and Leasing industry has underperformed the Zacks S&P 500 composite index but outperformed the broader sector over the past year.
Over this period, the industry has gained 8.4% compared with the S&P 500 Index’s northward movement of 13.3%. The broader sector has declined 1.4% 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- F12M), a commonly used multiple for valuing equipment and leasing stocks, the industry is currently trading at 12.69X, compared with the S&P 500’s 19.20X. It is also below the sector’s P/E (F12) ratio of 14.31X.
Over the past five years, the industry has traded as high as 16.73X, as low as 8.75X and at the median of 12.66X, as the chart below shows.
Wabtec: Wabtec’s top-line performance continues to benefit from solid growth across its Freight segment revenues. WAB has raised its 2023 sales view in the range of $9.50-$9.70 billion (prior view: $9.25-$9.50 billion). For 2023, WAB expects strong cash flow generation with operating cash flow conversion exceeding 90%. WAB has a solid track record with respect to earnings surprise, having surpassed the Zacks Consensus Estimate in three of the past four quarters. The average beat is 7.11%. The Zacks Consensus Estimate for 2023 earnings has been revised 5.1% upward in the past 90 days.
Price and Consensus: WAB
Ryder: Ryder operates as a logistics and transportation company worldwide. We are impressed by Ryder’s efforts to reward shareholders. R has outpaced the Zacks Consensus Estimate for earnings in three of the last four quarters. The average beat is 7.62%. The Zacks Consensus Estimate for 2023 earnings has been revised 0.4% upward in the past 90 days.
Price and Consensus: R
GATX: Based in Chicago, IL, GATX is a global railcar lessor with owned fleets in North America, Europe and Asia. Continued recovery in the North American railcar leasing market is expected to support GATX’s growth. Efforts to reward its shareholders also bode well.
GATX anticipates full-year 2023 earnings to modestly exceed the high end of its prior guidance range of $6.50–$6.90 per diluted share. GATX has an encouraging track record with respect to earnings surprise, having surpassed the Zacks Consensus Estimate in three of the last four quarters (missing the mark in the remaining one). The average beat is 16.49%. The Zacks Consensus Estimate for 2023 earnings has remained unchanged over the past 90 days.
Price and Consensus: GATX
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3 Stocks to Watch From the Transport Equipment & Leasing Industry
The Zacks Transportation - Equipment and Leasing industry is facing challenges, ranging from raging inflation, higher interest rates, supply-chain disruptions and high operating costs. The headwinds are likely to hurt the demand for containers.
Nonetheless, we believe that betting on three industry players, namely Westinghouse Air Brake Technologies Corporation, operating as Wabtec Corporation (WAB - Free Report) , Ryder System (R - Free Report) and GATX Corporation (GATX - Free Report) ), is a prudent move as they are better positioned to brave multiple industry challenges.
Industry Overview
The Zacks Transportation - Equipment and Leasing industry includes 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 and technology-based equipment, systems and services to freight rail and passenger transit industries.
3 Key Trends Influencing the Transportation - Equipment and Leasing Industry
Strong Financial Returns for Shareholders: With economic activities gaining pace from the pandemic lows, 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, Ryder announced a 14.5% hike in its quarterly dividend, taking the total to 71 cents per share (annualized $2.84) in July 2023.
Economic Uncertainty Remains: Though easing inflation has brought some relief to U.S. stock markets, the fact remains that we are far from being out of the woods. Though the Fed did not hike interest rates in September, Fed chair Jerome Powell said that the fight against inflation is far from over and that at least another quarter percentage interest rate hike is required in the current year. Sluggish economic growth and inflationary woes are likely to hurt consumer spending for the remainder of 2023.
Supply-Chain Disruptions & High Costs: Although economic activities picked up from the pandemic gloom, supply-chain disruptions continue to dent stocks in the industry. Increased operating costs are also limiting bottom-line growth. Costs will likely continue to be steep due to supply-chain troubles.
Zacks Industry Rank Indicates Gloomy Prospects
The Zacks Transportation - Equipment and Leasing industry, housed within the broader Zacks Transportation sector, currently carries a Zacks Industry Rank #151. This rank places it in the bottom 40% 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, indicates dull 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 sell-side analysts covering the companies in this industry have been decreasing their estimates. Over the past year, the industry’s consensus earnings estimate for the current year has decreased 3.6%.
Despite the cloudy prospects, we present a few stocks that investors can buy or retain, given their sturdy potential. But before that, let’s take a look at the industry’s recent stock market performance and its current valuation.
Industry Lags S&P 500 But Outperforms Sector
The Zacks Transportation - Equipment and Leasing industry has underperformed the Zacks S&P 500 composite index but outperformed the broader sector over the past year.
Over this period, the industry has gained 8.4% compared with the S&P 500 Index’s northward movement of 13.3%. The broader sector has declined 1.4% 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- F12M), a commonly used multiple for valuing equipment and leasing stocks, the industry is currently trading at 12.69X, compared with the S&P 500’s 19.20X. It is also below the sector’s P/E (F12) ratio of 14.31X.
Over the past five years, the industry has traded as high as 16.73X, as low as 8.75X and at the median of 12.66X, as the chart below shows.
P/E Ratio (Forward 12-Month)
3 Transport Equipment Leasing Stocks to Buy Now
We are presenting three Zacks Rank #2 (Buy) stocks that are well-positioned to grow in the near term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Wabtec: Wabtec’s top-line performance continues to benefit from solid growth across its Freight segment revenues. WAB has raised its 2023 sales view in the range of $9.50-$9.70 billion (prior view: $9.25-$9.50 billion). For 2023, WAB expects strong cash flow generation with operating cash flow conversion exceeding 90%. WAB has a solid track record with respect to earnings surprise, having surpassed the Zacks Consensus Estimate in three of the past four quarters. The average beat is 7.11%. The Zacks Consensus Estimate for 2023 earnings has been revised 5.1% upward in the past 90 days.
Price and Consensus: WAB
Ryder: Ryder operates as a logistics and transportation company worldwide. We are impressed by Ryder’s efforts to reward shareholders. R has outpaced the Zacks Consensus Estimate for earnings in three of the last four quarters. The average beat is 7.62%. The Zacks Consensus Estimate for 2023 earnings has been revised 0.4% upward in the past 90 days.
Price and Consensus: R
GATX: Based in Chicago, IL, GATX is a global railcar lessor with owned fleets in North America, Europe and Asia. Continued recovery in the North American railcar leasing market is expected to support GATX’s growth. Efforts to reward its shareholders also bode well.
GATX anticipates full-year 2023 earnings to modestly exceed the high end of its prior guidance range of $6.50–$6.90 per diluted share. GATX has an encouraging track record with respect to earnings surprise, having surpassed the Zacks Consensus Estimate in three of the last four quarters (missing the mark in the remaining one). The average beat is 16.49%. The Zacks Consensus Estimate for 2023 earnings has remained unchanged over the past 90 days.
Price and Consensus: GATX