Updated Research Report on GATX Corp. - Analyst Blog

On Apr 10, 2014, we issued an updated research report on GATX Corp. GMT. We believe strong lease renewal activities and continued growth in lease rates will drive growth for the company. Additionally, fleet modernization, higher asset utilization and an improving European railcar business will fuel growth over the long term.

GATX has delivered positive earnings surprise in the last two quarters out of four, with an average positive surprise of 0.05%. The company's fourth-quarter 2013 earnings and revenues beat Zacks' expectation.

GATX, continues to deliver strong results across most of its segments. We expect the company's Rail segment to gain from higher lease rates, addition of new railcars and accelerated lease renewals. In North America, leases on 20,000 new railcars are scheduled for renewal and the company expects a renewal rate change of Lease Price Index LPI in the range of 30 –35%.  Thus, the growing demand for railcars would help secure long-term lease contracts in the future with improvement in the market.

GATX focuses on improving its financial performance and maintains earnings projection for 2014 in the range of $3.85 to $4.05. The current Zacks Consensus Estimate for 2014 is currently pegged at $3.94. The company expects earnings growth to be driven by continued strength in North American rail and an improving European railcar business.

On the other hand, GATX operates in a highly competitive business environment. Competitors may offer leases and loans to customers at lower rates than GATX, thus affecting the company's asset utilization or ability to lease assets profitably.

The company's profitability is largely dependent on its ability to maintain assets on lease at satisfactory rates and to re-lease or sell assets upon lease expiration. An economic downturn resulting in reduced demand, changes in customer behaviour and supply/demand dynamics can adversely affect asset utilization and lease rates, which in turn, might hurt the company's revenues.

GATX currently carries a Zacks Rank #2 (Buy).

Stocks That Warrant a Look

Other better-ranked stocks worth considering in this sector include Ryder System, Inc. R, Trinity Industries Inc. TRN and Westinghouse Air Brake Technologies Corp. WAB. All these stocks carry the same Zacks Rank as GATX.