The Zacks Transportation - Equipment and Leasing industry currently stands to benefit from solid investor-friendly steps. Notably, consistent shareholder-friendly initiatives in the form of dividend payouts or share buybacks imply solid financial strength of companies in the Equipment and Leasing industry. These moves boost investors’ confidence and positively impact the bottom line.
On the flip side, the industry continues to grapple withchallenges, 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), The Greenbrier Companies, Inc. (GBX) and Ryder System (R) 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
Solid Financial Returns for Shareholders: With the resumption of economic activities, many players, including some Transportation - Equipment and Leasing industry players, are reactivating shareholder-friendly measures in the form of dividend payouts and share buybacks, which underline their solid financial footing and confidence in the business. For example, in January 2024, GATX’s board of directors announced a dividend hike of almost 5.5%, thereby raising its quarterly cash dividend from 55 cents per share to 58 cents. Notably, 2024 marks the 106th consecutive year of GATX paying out dividends.
Wabtec (on Feb. 14, 2024) announced a 17.6% dividend increase, thereby raising its quarterly cash dividend from 17 cents per share to 20 cents. Additionally, WAB’s board announced a $1 billion share buyback authorization.
On July 12, Ryder’s board of directors approved a dividend hike of 14.1%, thereby raising its quarterly cash dividend to 81 cents per share ($3.24 annualized) from 71 cents ($2.84 annualized). The raised dividend will be paid out on Sept. 20, 2024, to shareholders of record at the close of business on Aug. 19. This marks Ryder’s 192nd consecutive quarterly cash dividend.
Economic Uncertainty Remains: The Federal Reserve trimmed interest rates by 50 basis points in September. The benchmark policy rate is currently between 4.75% and 5%. Despite the rate cut, inflation is still above the Federal Reserve’s 2% target. We note that the industry has been experiencing significant levels of inflation, including higher prices for labor and freight. Moreover, the hotter-than-expected inflation reading for September has again raised concerns of a slowing economy. This is not good news for industry players as high interest rates flare up finance costs and potentially weaken borrowing and lending activities. Risks associated with an economic slowdown and geopolitical tensions may dampen the prospects of stocks belonging to this industrial cohort.
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 Encouraging Prospects
The Zacks Transportation - Equipment and Leasing industry, housed within the broader Zacks Transportation sector, currently carries a Zacks Industry Rank #43. This rank places it in the top 17% 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 buy-side analysts covering the companies in this industry have been increasing their estimates. Over the past year, the industry’s consensus earnings estimate for the current year has increased 4.7%.
Before we present a few stocks that investors can buy or retain given their growth prospects, let’s take a look at the industry’s recent stock market performance and current valuation.
Industry Outperforms S&P 500 & Sector
The Zacks Transportation - Equipment and Leasing industry has outperformed the Zacks S&P 500 composite index as well as the broader sector over the past year.
Over this period, the industry has gained 69.4% compared with the S&P 500 Index’s northward movement of 40.5% and the broader sector’s surge of 17.8%.
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 13.83X, compared with the S&P 500’s 22.06X. It is also below the sector’s P/E (F12) ratio of 16.35X.
Over the past five years, the industry has traded as high as 17.59X, as low as 9.36X and at the median of 13.69X, as the chart below shows.
P/E Ratio (Forward 12-Month)
3 Transport Equipment Leasing Stocks to Watch Now
We are presenting one Zacks Rank #2 (Buy) stock and two Zacks Rank #3 (Hold) 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: This Pittsburgh, PA-based company offers technology-based locomotives, equipment, systems, and services for the freight rail and passenger transit industries worldwide.
Wabtec’s top line benefits from higher sales across its Freight and Transit segments. While the Freight segment benefits from growth in Services and Digital, the transit segment gains from strong aftermarket and original equipment manufacturing sales. Driven by this encouraging backdrop, management raised its current-year earnings per share (EPS) guidance. Adjusted EPS is now estimated to be between $7.45 and $7.65, which is higher than the prior guidance of $7.20-$7.50. Wabtec continues to expect sales in the range of $10.25-$10.55 billion.
WAB has an impressive earnings surprise history. The company's earnings outpaced the Zacks Consensus Estimate in three of the trailing four quarters (missed the mark in the remaining quarter), delivering an average surprise of 11.83%. The Zacks Consensus Estimate for WAB’s 2024 earnings has been revised 0.6% upward over the past 60 days. WAB has an expected earnings growth rate of 26.86% for 2024. WAB is a Zacks Rank #2 stock.
Price and Consensus: WAB
Greenbrier: Headquartered in Lake Oswego, OR, Greenbrier designs, manufactures, and markets railroad freight car equipment in North America, Europe, and South America. Greenbrier has a solid earnings surprise history. The company's earnings outpaced the Zacks Consensus Estimate in two of the trailing four quarters (missed the mark in the remaining two quarters), delivering an average surprise of 15.00%. The Zacks Consensus Estimate for GBX’s 2024 earnings has moved up 2.8% in the past 90 days. GBX’s expected earnings growth rate for 2024 is 46.46%. GBX is a Zacks Rank #3 stock.
Price and Consensus: GBX
R: Headquartered in Miami, FL, Ryder operates as a logistics and transportation company worldwide. Ryder’s consistent efforts to reward its shareholders through dividends and buybacks are appreciative. Notably, Ryder has been making uninterrupted dividend payments for more than 48 years.R is a Zacks Rank #3 stock.
Ryder has an impressive earnings surprise history. The company's earnings outpaced the Zacks Consensus Estimate in each of the trailing four quarters, delivering an average surprise of 11.25%.
The Zacks Consensus Estimate for R’s 2024 earnings has been revised 0.1% upward over the past 60 days.
Price and Consensus: R
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