Zacks Investment Research | Nov 16, 2017 03:20AM ET
This week’s Growth and Income video highlights a shipping container company, Triton International (TRTN), and KLA Tencor (KLAC) a process control and yield management solutions company. Both of these firms have seen solid growth over the past few quarters and pay solid dividend yield.
First Triton International (TRTN), a Zacks Rank #1 (Buy) offers acquisition, leasing, re-leasing, and sale of intermodal containers. The company's leasing equipment consists of Dry Freight Containers, Refrigerated Containers, Special Containers, Tank Containers and Chassis. Triton International Limited, formerly known as TAL International Group, Inc., is based in Hamilton, Bermuda.
Earnings and Estimates
On November 8th, TRTN announced earnings where they easily beat both the Zacks consensus earnings and revenue estimates. Total leasing revenues were up +21.9% YoY, and +7.2% QoQ with its average utilization rates up +5.2% YoY, and +1.1% QoQ. The total average utilization rate for Q3 hit 97.6%. Further, container utilization was up another +0.4% after the earnings announcement (to 98%). Net income jumped up to $57.2 million compared to a loss of $36.3 million in the year ago quarter. Management also approved a $0.45 dividend to shareholders of record at the close of business December 1, 2017. The current dividend yield stands at +4.5%,
Due to the strong earnings, and positive growth drivers going forward, analysts have increased their estimates for Q4 17, Q1 18, FY 17 and FY 18 over the past 30 days; Q4 17 increased from $0.70 to $0.81, Q1 18 improved from $0.71 to $0.83, FY 17 was lifted from $2.59 to $2.75, and FY 18 jumped up from $3.49 to $3.78.
Drivers for Future Growth
According to management, “low inventory of available containers will keep market conditions firm. In addition, the traditional peak season for refrigerated containers is starting, and we have seen the supply / demand balance for refrigerated containers tighten ahead of the peak season over the last few months.” Management now expects their utilization rates to remain near peak levels during the fourth quarter (traditionally the slowest season).
During the earnings announcement, management stated that they raised funds for the purchase of new containers; raising $192.9 million through September. Currently, TRTN controls 30% of production of dry containers, and almost 60% of production for lessors. As of the earnings release, the company has ordered $1.6 billion of sale leaseback and new containers which will be delivered in 2017, and they have ordered about $100 million worth of new containers for delivery in 2018.
Further, almost half of new leases have increased their leasing periods from 5 to 7 years. Also during this current up cycle the company has seen higher renewal rates. These longer term leases are expected to increase returns for a much more extended period of time than in previous leasing cycles.
Another tailwind for the company is the recent International Monetary Fund raising global growth expectations for both 2017 and 2018; 2017 is expected to grow at +3.6%, and 2018 at +3.7%.
Price and Earnings Consensus Graph
As you can see in the Price and Earnings Consensus graph below, both the consensus annual earnings estimates and stock price have been on an upward trend since the beginning of the year.
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