Earnings momentum for CAI International Inc. (CAP) 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 quarter.
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 reputation.
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 2.7%, respectively.
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 point.
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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