Earnings momentum for
CAI International Inc.
) has been on the rise since this freight container leasing company
reported double-digit revenue and earnings growth in the second
quarter of 2012. CAP benefited from strengthening container demand
and continued growth in international trade. This Zacks #1 Rank
(Strong Buy) has gained over 37% year-to-date.
Despite the ultra-low interest rate, the company has returned over
25% on equity since the beginning of the year, supported by the
long-term multi-year leases for most of its equipment. With a
long-term earnings growth projection of 11.0%, the stock looks like
a solid growth pick.
On July 23, CAI International reported second quarter 2012 adjusted
earnings per share of 67 cents, up 21.8% from last year but below
the Zacks Consensus Estimate. Revenues grew 38.1% year over year to
a record $39.7 million, driven by strong growth in rental revenue
and lease income.
Its continued investments in the container fleet have started to
reap significant benefits for the company. Additionally, the
year-over-year improvements on the top and bottom lines came on the
back of healthy trade growths, increased freight rates, higher
cargo demand and high utilization. Average fleet utilization
increased slightly to 94.3% in the reported quarter from 94.2% last
As of June 30, CAI International's own fleet accounted for 56%
compared with 47% in the year-ago period. The remaining 44%
comprised third party containers managed by the company.
Though CAI International did not provide a specific guidance, it
expects revenue and profitability to get a boost from strong
container demand, improving utilization and growth in the Intra
Asian and Latin American trades.
Furthermore, the company often purchases railcars at attractive
prices that provide a competitive cost advantage over its peers.
This aids the company in maintaining its strong brand and
Earnings Estimates Moving Higher
Earnings estimates for CAI International have been advancing over
the last 60 days. The Zacks Consensus Estimate for 2012 is up 6.7%
to $3.19, while the Zacks Consensus Estimate for 2013 increased
10.1% to $3.71 . The estimates represent year-over-year growth of
52.1% for 2012 and 16.2% for 2013.
Considering the company's growth prospects, its valuation looks
attractive at current levels. CAI International is trading at a P/E
of 8.69x, which is a massive discount of 57.2% from the industry
average of 20.29x. Similarly, its P/B ratio of 1.47x implies a
discount of 34.7% when compared to the industry average of 2.25x.
In addition, CAI International has a trailing 12-month ROE of 18.7%
and a ROI of 6.0%, compared with the industry averages of 17.9% and
Chart Represents Growth Potential
As depicted by the chart below, investors will definitely be
encouraged by the wide gap between the price line and the earnings
estimate lines for 2012 and 2013. This gap indiactes that CAI
International is currently undervalued, suggesting a good entry
Based in San Francisco, California, CAI International Inc. leases
and manages freight containers across the world, including reefers,
palletwides, roll trailers, swap bodies and rail cars. It generally
leases containers to shipping lines, freight forwarders and other
transportation companies with both short and long-term agreements.
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