As North American markets have stagnated at a slower pace, we are initiating coverage on GATX Corporation (GMT), a leader in leasing transportation assets, with a long-term Neutral recommendation. Marine charter rates will remain under pressure due to weak markets and increased vessel delivery. Further, we expect the American Steamship Company segment to post improved profits while the Rail segment profit to deteriorate from the current level.
However, in the short term (1-3 months), we believe the stock will under perform relative to the broader market with a Sell rating and Zacks #4 Rank. We expect revenues to remain under pressure until there are signs of sustainable improvement in the global economy. The pricing environment is also expected to remain difficult in the near term.
We expect earnings to benefit from a gradual resurgence in global economy, which will, however, remain slow in the near term thereby constricting earnings improvement. Further, GATX is focused on cost containment, asset utilization and growing asset base to enhance its long-term performance. The company shortened the term of lease renewals, which we believe will improve its profitability in future.
The company continues to pay cash to its shareholders in the form of dividends. It currently pays an annualized dividend of $1.12 per share, representing a dividend yield of 4.06%.
Our Zacks Consensus Estimate for the second quarter of 2010 is currently 41 cents, which is flat with the year-ago quarter. This estimate is expected to surpass the Zacks Consensus Estimate by 4.9%. With respect to earnings surprises, the company’s fairly good track record is expected to persist in the coming quarters. Over the last four quarters, GATX produced an impressive average earnings surprise of 2.2%, which suggests that it beat the Zacks Consensus Estimate by that amount over the last year. The company exceeded the Zacks Consensus Estimate by 27.3% in the most recent quarter. However, in the comparable quarter last year, the company missed the Zacks Consensus Estimate by 18%.
GATX Corp. controls one of the largest railcar fleet in the world. The company provides lease financing and related services to customers operating rail, marine and other targeted assets. The company operates in three business segments: Rail, Specialty, and American Steamship Company.