The transportation hurdles and supply chain crisis created by the ongoing COVID-19 pandemic combined with boosted e-commerce sales growth and the appetite for faster deliveries contributed to chartering and spot rates surging, explains Nikolaos Sismanis, contributing editor to The Sure Analysis Research Database.
Despite signs of a potential improvement through 2022, rates still hover 500% higher than their historical average, meaning that companies in the space are literally printing cash. However, the industry can be very cyclical in the long term. Hence, one of our top picks is Triton International (TRTN).
The company is a "picks and shovels" play in the booming containership space that is not only benefiting from the ongoing landscape but also featuring qualities that protect investors' from the industry's uncertainty factor.
Triton International is the world's largest lessor of intermodal containers. Triton's total fleet consists of 4.2 million containers and chassis, representing 7.1 million twenty-foot equivalent units. The company has been able to post quite stable revenues, and consequently, earnings-per-share over the years.
With demand exceeding supply, the company's average remaining duration on the containers ordered in 2021 is 13 years, extending the remaining term lease on its total portfolio to 59 months. Due to the majority of its leases (over 70%) being under long-term contracts, the company's financials are essentially guaranteed to remain resilient even under a potentially challenging trading environment in the medium term.
Triton has been growing its dividend annually since its merger in 2016, and the latest dividend increase by 14% was certainly impressive. Further, management has been executing very beneficial stock repurchases, boosting investors' total returns, especially whenever shares have traded at a discount. Triton has purchased over 14.5 million common shares since the inception of its buyback in August 2018, reducing its share count by around 17.4% during this period.
Based on our expectations for the company to post FY2021 adjusted EPS of around $9.00, Triton stock's P/E stands at around 6.55 at its current price. Hence, we don't just find the stock very attractively priced, but the ongoing stock repurchases should further meaningfully reduce Triton’s share count at the stock's present levels.
Combining the possibility for a reasonable valuation expansion, Triton's 4.41% dividend yield, and stock buybacks, as well as our expectations for solid earnings and dividend per share growth, we believe that the stock is quite likely to outperform in 2022.
We also believe the company is well-positioned to deliver double-digit returns in the medium term on an annualized basis. Due to Triton's fantastic cash flow visibility in the coming years and discounted valuation, investors are also subject to a noteworthy margin of safety regarding Triton's overall investment case too.