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Freighter Demand Drives Air Transport (ATSG) Amid High Debt

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We have recently updated a report on Air Transport Services Group, Inc. ATSG.

Air Transport Services has an impressive Growth Score of A. This style score condenses all the essential metrics from the company’s financial statements to get a true sense of quality and sustainability of growth. It has an earnings surprise of 12.5%, on average, beating estimates in three of the last four quarters. The stock has gained 24.9% in the past six months against a 7% decline of the industry.

Zacks Investment Research
Zacks Investment Research

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E-commerce continues to drive demand for Air Transport Services Group's fleet. In this coronavirus-ravaged world, e-commerce has gained momentum amid social-distancing protocols, quarantine and lockdowns as demand for door-to-door delivery of essentials has increased. Despite coronavirus-induced disruptions, the company’s airline operations were strong in 2020. The same is likely to continue throughout 2021. Driven by higher demand for midsize freighters, the company raised its adjusted EBITDA view for 2021. The company expects the metric to be at least $535 million, indicating a 1.9% increase from the earlier guidance.

Additionally, the Cargo Aircraft Management (CAM) unit has been performing very well in the past few quarters After increasing 11.2%. 12.2% and 18% in fourth-quarter 2020, first-quarter 2021 and second-quarter 2021, respectively, segmental revenues increased 21.8% year over year in third-quarter 2021. Revenues in the unit were bumped up by the external leases of 13 more 767-300 freighters in the third quarter from the year-ago quarter’s levels. Segmental revenues from external customers rose 38% in the September quarter.

However, ATSG is highly leveraged. The company’s debt-to-equity ratio is greater than 1. A high debt-to-equity ratio indicates that the company depends primarily on debt to finance its growth.

Zacks Rank & Stocks to Consider

Air Transport Services currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Some better-ranked stocks in the broader Zacks Transportation sector are J.B. Hunt Transport Services, Inc. JBHT, FedEx Corporation FDX and C.H. Robinson Worldwide, Inc. CHRW.

The long-term expected earnings per share (three to five years) growth rate for J.B. Hunt is pegged at 15%. JBHT is benefiting from strong performances across all its segments. The Dedicated Contract Services (DCS) unit is being aided by fleet-productivity improvement and a rise in average revenue-producing trucks. The Integrated Capacity Solutions (ICS) unit is gaining from a favorable customer freight mix as well as higher contractual and spot rates.

JBHT’s measures to reward its shareholders are encouraging. Driven by the tailwinds, the stock has increased 49.1% in the past year. J.B. Hunt currently carries a Zacks Rank #2 (Buy).

The long-term expected earnings per share (three to five years) growth rate for FedEx is pegged at 12%. FDX is benefitting from a surge in e-commerce demand amid the pandemic. FedEx announced a multi-year partnership with the cloud-based software company, Salesforce, to enhance the e-commerce experience for merchants and customers. The partnership integrates Salesforce Commerce Cloud and Salesforce Order Management with capabilities from FedEx and its e-commerce platform, ShopRunner.

FDX exited first-quarter fiscal 2022 with cash and equivalents of $6,853 million, much higher than its current debt of $125 million. Driven by the tailwinds, the stock has moved up 13.5% in the past month. FedEx currently carries a Zacks Rank #2.

The long-term expected earnings per share (three to five years) growth rate for C.H. Robinson is pegged at 9%. CHRW benefits from higher pricing and volumes across most of its service lines. Total revenues jumped 42.4% year over year in the first nine months of 2021, with higher revenues across all the segments.

CHRW’s measures to reward shareholders are encouraging. Driven by the tailwinds, the stock has moved up 14% in the past year. C.H. Robinson currently carries a Zacks Rank #2.


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J.B. Hunt Transport Services, Inc. (JBHT) : Free Stock Analysis Report

C.H. Robinson Worldwide, Inc. (CHRW) : Free Stock Analysis Report

FedEx Corporation (FDX) : Free Stock Analysis Report

Air Transport Services Group, Inc (ATSG) : Free Stock Analysis Report

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