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Interest rates can impact companies on both the expense and revenue side based upon the type of industry. On the expense side, interest rates impact the magnitude of interest expense that flows through the income statement.
Some industries rely heavily upon debt and operate in a “spread” business, like in the case of airplane leasing whereby companies borrow to buy expensive assets like airplanes and then lock in long-term leases with airlines at a “spread” differential to their cost of debt.
Zacks currently has an Outperform rating on Willis Lease Finance (WLFC - Free Report) . As of the end of 2023, WLFC's portfolio included 337 engines, 12 aircraft, one marine vessel, and other leased parts and equipment, servicing 74 lessees across 42 countries.
Willis Lease Finance (WLFC - Free Report) has a debt load of $1.95 B as of 6/30/24 with $483.8 m maturing in 2025. If interest rates follow a glide path downwards, the company may be able to refinance at comparatively lower rates and thus materially reduce interest expense resulting in a positive boost to EPS.
Willis Lease Finance has an additional potential catalyst in the form of 15 recently acquired “greener” engines which operate at 17% lower fuel consumption. The $363.9 m acquisition of these engines could materially benefit lease revenue going forward.
The stock is currently trading at 1.44X trailing 12-month price/book value, which compares to 1.7X for the Zacks sub-industry, 4.01X for the Zacks sector and 8.52X for the S&P 500 index. Over the past five years, the stock has traded as high as 1.44X and as low as 0.25X, with a five-year median of 0.68X.
The stock is currently trading at 8.2X trailing 12-month EV/EBITDA TTM, which compares to 9.62X for the Zacks sub-industry, 10.91X for the Zacks sector and 18.82X for the S&P 500 index. Over the past five years, the stock has traded as high as 13.88X and as low as 5.35X, with a five-year median of 9.5X.
Image Source: Zacks Investment Research
Interest rate levels can also play an outsized role on the revenue side, especially for industries relying upon financial transactions, like real estate deals for revenue.
Investors Title Company (ITIC - Free Report) provides title insurance which protects against losses stemming from title defects. This segment represents about 90% of its revenue. Tax-deferred real property exchange services comprise the remainder of revenue.
Investors Title Company (ITIC - Free Report) has targeted select residential real estate markets in the US including North Carolina, South Carolina, Texas, Georgia, and recent entrance into the Florida market which is growing significantly. This focus on the stronger Sun belt region should prove to be an advantage in thwarting market volatility.
The company's resilience is further underscored by its robust balance sheet, with $26.7 million in cash and minimal liabilities, offering financial flexibility for potential growth initiatives like acquisitions.
The company relies upon a churn of mortgage financings as well as housing prices as the premiums are typically a percentage of the sales price of the home. It has been widely publicized that higher mortgage rates are keeping potential buyers on the sidelines while also deterring sellers from selling and having to lock in a new mortgage at a comparatively higher rate.
A gradual decline in interest rates may help to loosen up this log jam and enable a higher volume of financing activity which could benefit the company. Zacks recently upgraded Investors Title Company (ITIC - Free Report) to Outperform based on this thesis.
The stock is currently trading at 9.67X trailing 12-month EV/EBITDA TTM, which compares to 13.08X for the Zacks sub-industry, 3.41X for the Zacks sector and 18.52X for the S&P 500 index. Over the past five years, the stock has traded as high as 9.74X and as low as 2.29X, with a five-year median of 4.67X.
Image Source: Zacks Investment Research
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2 Small Caps of "Interest"
Interest rates can impact companies on both the expense and revenue side based upon the type of industry. On the expense side, interest rates impact the magnitude of interest expense that flows through the income statement.
Some industries rely heavily upon debt and operate in a “spread” business, like in the case of airplane leasing whereby companies borrow to buy expensive assets like airplanes and then lock in long-term leases with airlines at a “spread” differential to their cost of debt.
Zacks currently has an Outperform rating on Willis Lease Finance (WLFC - Free Report) . As of the end of 2023, WLFC's portfolio included 337 engines, 12 aircraft, one marine vessel, and other leased parts and equipment, servicing 74 lessees across 42 countries.
Willis Lease Finance (WLFC - Free Report) has a debt load of $1.95 B as of 6/30/24 with $483.8 m maturing in 2025. If interest rates follow a glide path downwards, the company may be able to refinance at comparatively lower rates and thus materially reduce interest expense resulting in a positive boost to EPS.
Willis Lease Finance has an additional potential catalyst in the form of 15 recently acquired “greener” engines which operate at 17% lower fuel consumption. The $363.9 m acquisition of these engines could materially benefit lease revenue going forward.
The stock is currently trading at 1.44X trailing 12-month price/book value, which compares to 1.7X for the Zacks sub-industry, 4.01X for the Zacks sector and 8.52X for the S&P 500 index. Over the past five years, the stock has traded as high as 1.44X and as low as 0.25X, with a five-year median of 0.68X.
The stock is currently trading at 8.2X trailing 12-month EV/EBITDA TTM, which compares to 9.62X for the Zacks sub-industry, 10.91X for the Zacks sector and 18.82X for the S&P 500 index. Over the past five years, the stock has traded as high as 13.88X and as low as 5.35X, with a five-year median of 9.5X.
Image Source: Zacks Investment Research
Interest rate levels can also play an outsized role on the revenue side, especially for industries relying upon financial transactions, like real estate deals for revenue.
Investors Title Company (ITIC - Free Report) provides title insurance which protects against losses stemming from title defects. This segment represents about 90% of its revenue. Tax-deferred real property exchange services comprise the remainder of revenue.
Investors Title Company (ITIC - Free Report) has targeted select residential real estate markets in the US including North Carolina, South Carolina, Texas, Georgia, and recent entrance into the Florida market which is growing significantly. This focus on the stronger Sun belt region should prove to be an advantage in thwarting market volatility.
The company's resilience is further underscored by its robust balance sheet, with $26.7 million in cash and minimal liabilities, offering financial flexibility for potential growth initiatives like acquisitions.
The company relies upon a churn of mortgage financings as well as housing prices as the premiums are typically a percentage of the sales price of the home. It has been widely publicized that higher mortgage rates are keeping potential buyers on the sidelines while also deterring sellers from selling and having to lock in a new mortgage at a comparatively higher rate.
A gradual decline in interest rates may help to loosen up this log jam and enable a higher volume of financing activity which could benefit the company. Zacks recently upgraded Investors Title Company (ITIC - Free Report) to Outperform based on this thesis.
The stock is currently trading at 9.67X trailing 12-month EV/EBITDA TTM, which compares to 13.08X for the Zacks sub-industry, 3.41X for the Zacks sector and 18.52X for the S&P 500 index. Over the past five years, the stock has traded as high as 9.74X and as low as 2.29X, with a five-year median of 4.67X.
Image Source: Zacks Investment Research