Textainer Group Holdings Ltd. (TGH) presents a unique value proposition in a market where many stocks have stretched valuations. TGH has a simple business, high dividend yield, low price-to-earnings multiple, and strong revenue growth.
Textainer states that it is the "world's largest lessor of intermodal containers based on fleet size." Textainer purchases intermodal containers by utilizing its relatively low cost of capital. Textainer leases the containers to shippers, an industry that has experienced poor access to credit markets to fund the capital expense of purchasing containers. Textainer also buys and resells used containers all over the world and has a single source contract to lease intermodal equipment to the U.S. military's Surface Deployment and Distribution Command (SDDC).
Textainer pays a 46 cents/quarter dividend, which produces a 5.13% yield on the stock's current price. Textainer has raised the dividend for 13 consecutive quarters, doubling it from 23 cents over that period. Despite the impressive dividend growth, the most recent quarter's distribution still only represented 57% of the company's adjusted net income.
Click to enlarge images.
Low P/E Ratio
Textainer currently trades at a price-to-earnings multiple of 8.98. The chart below shows Textainer's historical P/E since it became publicly traded in 2007. The current valuation provides an excellent entry point. Textainer's P/E also compares favorably from a value prospective to the Dow Jones Transportation Index (DJT), which currently has a frothy P/E of 21.51.
Strong Revenue Growth
Textainer's 2012 revenue of $487 million was more than double its 2009 revenue of $239 million. Although Textainer's rate of revenue growth is slowing, the company still reported a 9.6% increase over the prior year quarter in its last quarter. Credit Suisse expects Textainer's revenue to be $534 million this year, $597 next year, and $650 million in 2015.
Textainer recently announced a new investment that will be an opportunity for future growth in addition to its traditional business lines. Textainer has partnered with Trifleet Leasing, which will acquire intermodal tank containers for Textainer. Intermodal tank containers are used to transport the storage of liquid food, chemicals, and gases. Trifleet will continue to utilize its expertise as a leading tank container lessor and lease the containers for Textainer.
In July 2012, I made the bull case for Textainer shortly after it reached an all-time high of $39.35 and was trading at $37.42. After peaking at $43.96 on Feb. 12 of this year, Textainer's stock has retreated back to an appealing price below $35. I recommend initiating or expanding a position in this company with a simple business and both value and growth attributes.