Bear of the Day: CAI International (CAI)

CAI International (CAI) is in the tough business of global transportation at a time when everyone is worried about a global recession. This Zacks Rank #5 (Strong Sell) missed big on the estimate in the fourth quarter but recorded a record net income on the year.

CAI operates a global transportation finance and logistic company with 22 offices in 12 countries including the United States. As of the end of Dec 2018, it operated a worldwide fleet of about 1.6 million CEUs of containers and owned a fleet of 7,279 railcars that it leased within North America.

A Big Earnings Miss in the Fourth Quarter of 2018

On Feb 20, CAI reported its fourth quarter results and missed on the Zacks Consensus by 17 cents. Earnings were just $0.89 versus the consensus of $1.06.

However, container demand remained strong. The average utilization of the container fleet in the fourth quarter was 99.2% and, as of February 2019, was still 98.8%.

In the prior two years, it has leased over $1 billion in new containers with an average lease term of 8.6 years. It expects its overall utilization to remain strong as it benefits from the long lease commitments.

Secondary prices of containers also continues to be strong in most markets.

In the railcars, it sold 385 railcars for $40 million. It continued to see improving utilization and rental rate trends in the rail segment. Rail car utilization rose to 87% compared to 84% in the third quarter.

In logistics, it continues to focus on growth, especially domestic intermodal and truck brokerage. It is looking for double-digit revenue growth in the logistics business in 2019.

Why the Zacks Rank of Strong Sell?

The Zacks Rank is a short term recommendation based on revisions to analyst estimates.

After CAI missed on the estimate in February, one analyst revised both 2019 and 2020's estimate lower.

The 2019 Zacks Consensus Estimate fell to $4.00 from $4.23 since the revision. However, that's still earnings growth of 9.9% as the company made just $3.64 in 2018.

Similarly, one estimate was also cut for 2020 which pushed down the Zacks Consensus to $4.38 from $4.83 over the last 60 days. But that's still another 9% earnings growth.

Shares Are Dirt Cheap

Shares have been up and down in 2019 and are up just 8% year-to-date, which is under performing the S&P 500 over this period.

They're really cheap, trading with a forward P/E of just 6.3.

Investors don't know what to make of the container companies. Transportation- Equipment and Leasing remains in the bottom 14% of all Zacks Industries on fears of a global recession.

Two others in the industry, Greenbrier (GBX) and FreightCar America (RAIL) are also Zacks Rank #5 (Strong Sells).

CAI doesn't pay a dividend but it started a 3 million share repurchase program in the third quarter of 2018 and has already purchased 542,000 shares. It intends to continue to purchase throughout 2019.

The company remains bullish about its business model. For those of you interested in investing in this space, you should continue to check the Zacks Rank as it can change daily.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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