New Buy (GATX)

21 Jul 2016 21:56

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The market might be high but there are still some buys out there if you do your homework. Today I grabbed one of those opportunities buying 100 shares of GATX Corp (GATX) at $44 to add to my existing position I that initiated last February.

Before the market opened GATX reported quarterly earnings and knocked it out of the park. Estimates were at $1.24/share and they reported $1.49/share. As great as this sounds the excitement was tempered by the rail industry declaring the remainder of 2016 as “soft” and the railcar leasing company GATX Corp confirming the same future outlook which sent the stock down more than $3/share for the day to close at $44.06.

Yet, where the market saw disappointment I saw an opportunity. Much of the gains for the quarter were from efforts to reduce overhead costs such as SG&A that improve margins making them leaner and more competitive. Also leadership confirmed their full year earnings forecast of $5.55 to 5.75/share or an 18% to 22% increase over 2015 earnings of $4.69/share. Yes there is currently a glut of railcars but GATX has a proven knack for understanding which types of railcars will be in demand and aggressively managing lease agreements to help reduce the “softness” within the industry. The increase in earnings should support a dividend growth increase anywhere from 10% to 15% while decreasing their payout ratio.

Based on the lower end of the projected dividend growth (10%) that places forward dividends at $1.76/share and with a share price of $44 or less translates into a 4% yield for 2017. I love GATX as an alternative to rail operators like Union Pacific and CSX, hopefully I will be rewarded when January 2017 rolls around.


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