GATX has taken advantage of low interest rates over the past few years to improve its debt profile, which is currently 90% fixed, with an average maturity of 10 years. Meanwhile, spot lease rates are expected to continue their seven-quarter run of sequential growth. This should lead to progressively higher returns for the company, which is now likely to focus on locking into much higher lease terms.
On May 31, we held a discussion with five expert panelists who provided insights into the current state and outlook of the rail, locomotive and railcar leasing and manufacturing markets. Overall, railcar demand recovery has been driven largely by freight cars, but our panelists indicated that tank car utilization and rates are rising. If this continues and eventually leads to higher tank builds, it could be a margin tailwind for manufacturers. As for the broader railcar market, inquiries remain strong, but labor and disruptions could limit production. Locomotive upgrades remain solid.
March 9 was Investor Day for Wabtec (WAB), and its five-year margin target is ahead of consensus for the next three years (the maximum available). Revenue and EPS targets are not inconsistent with Street expectations. Cowen and Company believes WAB’s geographic breakout could position it well as some rail commodities shift from Russia to other world regions.
Cowen and Company on Feb. 15 held a webinar with five expert panelists addressing the current state and outlook for the rail, locomotive, and railcar leasing and manufacturing markets.
Takeaways from Cowen and Company’s recent Rail Equipment Webinar show that locomotive upgrades remain solid, as traffic growth continues. Elevated inquiries for newly built railcars should begin to translate into orders gradually, despite the steel premium. Lessors are well-positioned as freight demand rises, railcar supply decreases and new builds fall short of replacement levels this year.
Here are a few follow-up thoughts to our May 7 report, Car Conundrum: Amid Rising Demand, Who’s “Steeling” the Show. We believe a cyclical inflection point and a number of macro factors could elevate interest
Railcar demand is on the rise, but so is the price of steel, which Cowen and Company estimates has put a 15%-25% premium on newly built equipment.
Equipment analyst Matt Elkott offers perspectives on two of the rail industry’s biggest OEMs.
At Cowen and Company, we are revising our transportation OEM and machinery earnings estimates for fourth-quarter 2020 and 2021, and introducing our 2022 estimates; updating our North American Class 8 production forecast; and fine-tuning our railcar supply demand model. What are we seeing? Gradually improving supply-side dynamics.
At Cowen and Company, we expect North American railcar demand to recover in 2021. One of the best-positioned suppliers? The Greenbrier Companies (GBX), with more than a 40% manufacturing share following the acquisition of ARI. Railcar markets in Europe and Brazil are also improving. All of this plus the cost-cutting measures GBX has taken make it our top 2021 pick.
