Sector Watch: Shipping container stocks
While a weak dollar is bad news to some, it creates profitable possibilities for others. Case in point: shipping container fleet owners CAI International (NYSE:CAP) and Textainer Group Holdings Limited (NYSE:TGH) are both benefiting from greatly improved container leasing rates and rising fleet utilization.
The weak dollar has led to a surge in U.S. exports, and as a result, U.S. exporters are facing a shortage of shipping containers, which are the freight-car-sized boxes used to transport goods abroad. On April 10, 2008, a Wall Street Journal story noted that much of the United States (particularly the Midwest) lacks a sufficient supply of shipping containers because ones shipped overseas are not returned due to rising fuel costs.
The cost of sending a 40-foot container from California to China is already up 20% this year to around $1,500. In most cases, boxes that do come back and would have previously moved inland now never leave the coast. The container shortage is not likely to improve anytime soon since containerized trade is forecasted to rise 9% to 10% in 2008 and 2009. It is not only containers that are in short supply; there is also a shortage of chassis, which are sets of wheels and frames on container-carrying trucks. Without chassis, containers can’t be moved by truck.
CAI International is among the world’s leading managers and lessors of intermodal freight containers. At year-end 2007, the company operated a worldwide fleet consisting of 754,000 TEU (twenty-foot equivalent units) of containers. CAI International offers its customers long-term, short-term and finance leases, and also provides container repair, re-positioning and storage services. The company is headquartered in San Francisco, Calif. and has offices in the United Kingdom, Belgium, Hong Kong, Singapore, Japan, Malaysia, Taiwan and South Korea.
CAI International’s fleet utilization rate rose to 96% last year from 92%. The company also expanded its fleet 12.5% in 2007 to 754,343 TEUs from 688,978 TEUs in 2006. CAI International used funds raised through its 2007 IPO to purchase $220 million worth of containers. The company also increased the percentage of containers on long-term leases to nearly 71% in 2007 from 65% in 2006. CAI International expects the percentage of long-term leases to rise again in 2008 since container prices are up 20% to 30% and leasing offers an affordable alternative to purchasing. With credit tightening, many companies are also finding it more difficult to borrow money for container purchases.
In 2007, CAI International recorded 23% net income growth on 7% revenue growth. Revenues increased 7% year-over-year to $64.9 million from $60.7 million, and net income improved 23% year-over-year to $19.2 million from $15.6 million. EPS reached $0.85. (We can’t compare year-over-year EPS because of changes in the company’s capital structure following the IPO).
CAI International expects accelerating revenue growth in 2008 as a result of growth in the percentage of owned versus managed containers, fleet additions and continued high utilization rates. The company anticipates 2008 EPS in a $1.30 to $1.35 range, up at least 50% from 2007. Analysts expect this company to produce 15% average annual longer-term growth. My $18 price target for CAI International is 25% higher than Tuesday’s closing price of $14.42. Shares have ranged between $7.90 and $15.96.
Textainer Group Holdings Limited has the world’s largest intermodal fleet, consisting of more than 1.3 million containers and over 2 million TEUs of owned and/or managed product. The company leases its containers to over 300 shipping lines. Textainer is also one of the largest used-container dealers; it sold more than 85,000 units last year. Services are provided worldwide through 14 regional offices and 300 independent depots across 130 locations.
The company used the $138 million proceeds from its October 2007 IPO to pay down $56 million of debt and purchase stock worth $71 million in Textainer Marine Containers Limited from its joint venture partner. As a result, company-owned containers now represent 40% of the overall fleet.
Textainer has already ordered 39,600 TEUs of new containers for first quarter 2008 deliveries and re-entered the refrigerated shipping container market earlier this year. It purchased 800 refrigerated containers and already has 770 committed under leases with various shippers. Another 1,000 refrigerated containers have been ordered for May and June 2008 deliveries.
Textainer’s revenues rose 13% year-over-year in 2007 to $255.8 million from $226.5 million, EBITDA increased 16% year-over-year to $154 million from $132.4 million, and net income climbed 20% year-over-year to $67.7 million from $56.3 million. Excluding unrealized losses on interest rate swaps, Textainer would have recorded 29% year-over-year net income growth and earnings of $73.3 million. Per-share net earnings grew 14% to $1.66 in 2007 from $1.46 in 2006. Fleet utilization rates remains above 93% in 2008.
Analysts think Textainer will generate 10% average annual growth over the next few years. While its growth is slower than CAI International’s, Textainer has a more modest valuation at only 9.6 times earnings versus 17 times earnings for CAI International. My $23 price target for Textainer Group Holdings Limited is 35% above Tuesday’s closing price of $17.01. Over the last 52 weeks, shares have ranged between $10.45 and $18.72.
The weak dollar has led to a surge in U.S. exports, and as a result, U.S. exporters are facing a shortage of shipping containers, which are the freight-car-sized boxes used to transport goods abroad. On April 10, 2008, a Wall Street Journal story noted that much of the United States (particularly the Midwest) lacks a sufficient supply of shipping containers because ones shipped overseas are not returned due to rising fuel costs.
The cost of sending a 40-foot container from California to China is already up 20% this year to around $1,500. In most cases, boxes that do come back and would have previously moved inland now never leave the coast. The container shortage is not likely to improve anytime soon since containerized trade is forecasted to rise 9% to 10% in 2008 and 2009. It is not only containers that are in short supply; there is also a shortage of chassis, which are sets of wheels and frames on container-carrying trucks. Without chassis, containers can’t be moved by truck.
CAI International is among the world’s leading managers and lessors of intermodal freight containers. At year-end 2007, the company operated a worldwide fleet consisting of 754,000 TEU (twenty-foot equivalent units) of containers. CAI International offers its customers long-term, short-term and finance leases, and also provides container repair, re-positioning and storage services. The company is headquartered in San Francisco, Calif. and has offices in the United Kingdom, Belgium, Hong Kong, Singapore, Japan, Malaysia, Taiwan and South Korea.
CAI International’s fleet utilization rate rose to 96% last year from 92%. The company also expanded its fleet 12.5% in 2007 to 754,343 TEUs from 688,978 TEUs in 2006. CAI International used funds raised through its 2007 IPO to purchase $220 million worth of containers. The company also increased the percentage of containers on long-term leases to nearly 71% in 2007 from 65% in 2006. CAI International expects the percentage of long-term leases to rise again in 2008 since container prices are up 20% to 30% and leasing offers an affordable alternative to purchasing. With credit tightening, many companies are also finding it more difficult to borrow money for container purchases.
In 2007, CAI International recorded 23% net income growth on 7% revenue growth. Revenues increased 7% year-over-year to $64.9 million from $60.7 million, and net income improved 23% year-over-year to $19.2 million from $15.6 million. EPS reached $0.85. (We can’t compare year-over-year EPS because of changes in the company’s capital structure following the IPO).
CAI International expects accelerating revenue growth in 2008 as a result of growth in the percentage of owned versus managed containers, fleet additions and continued high utilization rates. The company anticipates 2008 EPS in a $1.30 to $1.35 range, up at least 50% from 2007. Analysts expect this company to produce 15% average annual longer-term growth. My $18 price target for CAI International is 25% higher than Tuesday’s closing price of $14.42. Shares have ranged between $7.90 and $15.96.
Textainer Group Holdings Limited has the world’s largest intermodal fleet, consisting of more than 1.3 million containers and over 2 million TEUs of owned and/or managed product. The company leases its containers to over 300 shipping lines. Textainer is also one of the largest used-container dealers; it sold more than 85,000 units last year. Services are provided worldwide through 14 regional offices and 300 independent depots across 130 locations.
The company used the $138 million proceeds from its October 2007 IPO to pay down $56 million of debt and purchase stock worth $71 million in Textainer Marine Containers Limited from its joint venture partner. As a result, company-owned containers now represent 40% of the overall fleet.
Textainer has already ordered 39,600 TEUs of new containers for first quarter 2008 deliveries and re-entered the refrigerated shipping container market earlier this year. It purchased 800 refrigerated containers and already has 770 committed under leases with various shippers. Another 1,000 refrigerated containers have been ordered for May and June 2008 deliveries.
Textainer’s revenues rose 13% year-over-year in 2007 to $255.8 million from $226.5 million, EBITDA increased 16% year-over-year to $154 million from $132.4 million, and net income climbed 20% year-over-year to $67.7 million from $56.3 million. Excluding unrealized losses on interest rate swaps, Textainer would have recorded 29% year-over-year net income growth and earnings of $73.3 million. Per-share net earnings grew 14% to $1.66 in 2007 from $1.46 in 2006. Fleet utilization rates remains above 93% in 2008.
Analysts think Textainer will generate 10% average annual growth over the next few years. While its growth is slower than CAI International’s, Textainer has a more modest valuation at only 9.6 times earnings versus 17 times earnings for CAI International. My $23 price target for Textainer Group Holdings Limited is 35% above Tuesday’s closing price of $17.01. Over the last 52 weeks, shares have ranged between $10.45 and $18.72.
About the Author
Contributing author Lisa Springer is an equity research analyst with nearly 20 years of investment research experience.
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