Why Investors Should Own Air Transport Services (ATSG) Now
Rising demand for e-commerce bodes well for Air transport services ATSG. However, escalating fuel costs, a major headwind, are limiting earnings growth.
Factors favoring ATSG
Despite the reopening of economies, the thirst for online shopping is rampant among consumers. The strength of e-commerce demand bodes well for the ATSG. As in the first quarter of 2022, the high demand for parcel deliveries via e-commerce should also contribute to the results of the second quarter of 2022.
Strong demand for mid-size freighters is also a positive for ATSG, which currently holds a No. 3 (Hold) Zacks rank. Driven by rising demand for these freighters, Air Transport Services released a bullish view of Adjusted EBITDA for 2022. ATSG expects the metric to be $640 million, or nearly $100 million above 2021 levels.
You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The performance of ATSG’s CAM (Cargo Aircraft Management) segment is also encouraging. After increasing by 11.2%. 12.2%, 18% and 21.8% in the fourth quarter 2020, first quarter 2021, second quarter 2021 and third quarter 2021, respectively, segment revenue increased 26.5% year-on-year other in the fourth quarter of 2021. Consistent with this upward trend, segment revenues increased by 28.4% in the first quarter of 2022. CAM segment revenues in the March quarter were boosted by a larger fleet of Boeing 767 leased externally compared to the level of the previous year. Aircraft leasing and related revenue from external customers increased 26% year over year in the March quarter
Capital expenditures are high at Air Transport Services, limiting net income growth. Capital spending for 2022 is expected to be $590 million, 16.9% higher than the reported 2021 figure. Higher fuel spending due to the current oil price spike is also hurting the bottom line. of ATSG. Clearly, operating costs increased by 30.3% in the first quarter of 2022, with fuel expenses increasing by 98.2%.
ATSG is heavily indebted. Obviously, its debt ratio is close to 1. A high debt ratio indicates that a company depends mainly on debt to finance its growth.
Actions to Consider
Some higher-ranked stocks within the broader transportation sector that investors can consider include:
Bulk Eagle Shipping EGLE sports a Zacks rank #1 currently. EGLE has a history of pleasant surprises, with revenue beating Zacks’ consensus estimate in two of the previous four quarters while missing the mark in the other two.
Eagle Bulk shares have gained more than 4% year-to-date. Improving market sentiment around the Drybulk market is helping the stock. EGLE has one of the largest fleets of Supramax/Ultramax vessels in the world. Efforts to modernize its fleet also bode well.
Investment Product Partners CPLP boasts a No. 1 Zacks rank. CPLP has an impressive upset history, with its net income beating Zacks’ consensus estimate in three of the previous four quarters while missing the mark in just one.
Shares of Capital Product Partners are up more than 25% in one year. Improving market sentiments around the Drybulk market are helping the CPLP stock.
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