The Zacks Transportation - Equipment and Leasing industry currently stands to benefit from the 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. Such moves boost investors’ confidence and positively impact the bottom line.
On the flip side, the industry continues to grapple with 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 Corp., Air Lease Corp. and The Greenbrier Companies, Inc., 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.
Factors Deciding the Industry's Outlook
Strong Financial Returns for Shareholders: With economic activities gaining pace from the pandemic lows, more and more companies are allocating their increasing cash pile through dividends and buybacks to pacify long-suffering shareholders. This underlines their financial strength and confidence in the business. Among the Transportation – Equipment and Leasing industry players, Wabtec and Ryder System, Inc. (R) announced an increase in the quarterly dividend last year.
Economic Uncertainty Remains: The Federal Reserve cut its benchmark interest rate by a quarter percentage point in December 2024, marking the third successive reduction. The benchmark policy rate is currently between 4.25 and 4.5%. Despite the rate cut, inflation is still above the Federal Reserve’s 2% target. We note that the industry has been experiencing moderate-to-high levels of inflation.
Moreover, high inflation is expected in the Trump 2.0 era, and this might keep the Fed from taking a too dovish stance going forward. 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 economic uncertainty and geopolitical tensions may also 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 #62. This rank places it in the top 25% 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 Underperforms S&P 500 & Sector
The Zacks Transportation - Equipment and Leasing industry has outperformed the Zacks S&P 500 Composite, as well as the broader sector over the past year.
Over this period, the industry has declined 8% against the S&P 500 Index’s northward movement of 23.1% and the broader sector’s loss of 1.6%.
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 16.42X, compared with the S&P 500’s 21.80X. It is also below the sector’s P/E (F12) ratio of 15.60X.
Over the past five years, the industry has traded as high as 17.59X, as low as 9.36X and at the median of 13.71X.
3 Transport Equipment Leasing Stocks to Watch Now
We are presenting one Zacks Rank #1 (Strong 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 stocks here.
Greenbrier: Headquartered in Lake Oswego, OR, Greenbrier designs, manufactures, and markets railroad freight car equipment in North America, Europe, and South America. GBX sports a Zacks Rank #1. Greenbrier'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 31.85%. The Zacks Consensus Estimate for GBX’s 2025 earnings has moved up 34% in the past 90 days. GBX’s expected earnings growth rate for 2025 is 18.95%.
Price and Consensus: GBX
Wabtec: This Pittsburgh, PA-based company offers technology-based locomotives, equipment, systems, and services for the freight rail and passenger transit industries worldwide. WAB’s focus on new technologies to improve safety and reliability, along with its restructuring and cost-cutting actions, are the main drivers of its strength lately.
WAB'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 9.46%. WAB is a Zacks Rank #3 stock. The Zacks Consensus Estimate for WAB’s 2025 earnings has been revised 3% upward over the past 60 days. WAB has an expected earnings growth rate of 12.96% for 2025.
AL: Headquartered in Los Angeles, CA, Air Lease operates as an aircraft leasing company engaged in purchasing and leasing commercial jet aircraft to airlines worldwide. AL is a Zacks Rank #3 stock.
AL 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 10.26%.
The Zacks Consensus Estimate for AL’s 2025 earnings has moved up 3.8% in the past 90 days. GBX’s expected earnings growth rate for 2025 is 42%.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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