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Summary

  • Trinity Industries and United Rentals dominate the lease space within their respective sectors.
  • Air Lease Corp is a small but rapidly growing competitor within the aircraft leasing sector.
  • All three companies have significant EPS growth potential during the coming quarters.

Trinity Industries Inc. (NYSE:TRN) is a diversified company that provides products and services to the energy, transportation, chemical, and construction sectors though its Rail Group, Railcar Leasing and Management Services Group, Inland Barge Group, Construction Products Group and its Energy Equipment Group. Since its Rail Group and Railcar Leasing Groups accounted for 60% of its 2013 operating profit the market primarily views TRN as a railcar manufacturer and lesser.

The discovery of natural gas and oil in the North Dakota and Saskatchewan Bakken shale fields and environmental opposition to new pipelines such as Key Stone means that rapidly increasing amounts of oil and gas in both the United States and Canada are being transported to market by rail. The need for additional rail cars to do this is being augmented by the fact that train derailments and explosions in Quebec and in the U.S. has also meant that governments in both countries are bringing in much tougher safety regulations. Many existing rail cars will need to be scrapped or rebuilt. Canada has already announced its changes with the U.S. Department of Transportation to release new standards this Fall which could mean a need for 150,000 additional rail cars in the U.S.

Air Lease Corporation (NYSE:AL) is small, with 196 aircraft at the end of Q1 2014 as compared with the new company to be formed by the merger of International Lease Finance Corporation and the Netherlands' Aer Cap which will have about 1,300 aircraft, and GE Capital Aviation Services which has about 1,700 lease aircraft, though its fleet and earnings are growing rapidly.

Air Lease acquires aircraft directly from manufacturers such as Boeing and Airbus at attractive prices and leases them to airlines which lack the ability to finance purchases themselves or which chose not to tie up cash by buying. Air Lease has also been able to profit by reselling aircraft from its fleet when judged attractive to do so. At the end of Q1 44.7% of its fleet was leased to Asia/Pacific airlines with another 34.6% to European airlines.

United Rentals Inc. (NYSE:URI) is the largest equipment rental company in the world. Following the acquisition of National Pump in April and the small tuck-in of the Power and HVAC assets of Louisiana-based Blue-Stream Services in May, the company offers an integrated network of 876 rental locations in 49 states and 10 Canadian provinces. The company rents approximately 3,100 classes of equipment to construction and industrial customers, utilities, municipalities, homeowners and others. United Rentals has also just been added to the S&Ps MidCap 400 Index.

Analysis

Market Cap

Revenue

Trailing 12 mo. EPS

P/E

Q2 2014 Est.(Q2 2013 actual)

TRN

6.4B

4.9B

$6.62

12.3

$1.52

($1.07)

AL

4.3B

913M

$1.96

20.8

$0.53

($0.41)

URI

10.5B

5.0B

$4.01

26.4

$1.47

($1.12)

*Figures in the above table are sourced from: S&P Capital IQ, Thomson Reuters Stock Reports as found on TD Waterhouse website

S&P Capital IQ has a 12-month price targets for Trinity of $90 (trading at $81.25 today) and $120 for United Rentals (trades at $105.77 today). S&P does not give a target for Air Lease though Thomson Reuters is calling for $43.30 (trading at $41.38 today).

S&P Capital rate Trinity and United as 'Strong Buys'. Thomson Reuters assign Trinity a 10 out of 10 for investment attractiveness and give an 8 out of 10 to Air Lease and 9 out of 10 to United Rentals.

Conclusions

I do not own shares in any of the above three companies though I have, and I am not a stock analyst. I simply do research for my own account. This said, my analysis would indicate that while all three companies have strong 12-month potential, Air Lease, trading at $41.38 today and with a P/E of 20.8 is approaching Thomson Reuters' current target of $43.30. It might be best to wait for a pull-back.

United Rentals currently trades at a P/E of 26.4 which is the highest of our three companies, and $14.23 below S&P's 12-month price target. According to Forex.com, economists were expecting U.S. construction spending to increase by 0.6% in March though it came in at 0.2%, for April they expected a 0.7% increase though the actual number once again came in at 0.2%. Though United Rentals trades at a lofty P/E, its shares could jump should construction numbers at the beginning of July finally come in as economists have been expecting for the past two months.

Trinity Industries trades at a comparatively low 12.5 P/E with its current price of $81.25 well below S&P Capital's 12-month target of $90. This is explained in part by trading which I think makes Trinity a stock to consider buying now. On June 2, Trinity's shares dropped $4.96, or 5.7% and the following day they fell another $1.27, for a total two-day drop of 7.2%. There were no corporate announcements or analyst downgrades to explain this sudden drop and I have therefore concluded that it was brought about by programme trading and short selling. Trinity also splits 2 for 1 on June 19 which could be a positive for this company.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Source: Trinity Industries, United Rentals, Air Lease All Offer Significant Upside