CAI International Inc (NYSE:CAP) has been on an impressive run. I talked about it last year when it was at $20 or below. Now it is pushing $29, and the stock might record some impressive gains in the future. I wanted to touch on the stock and some related companies again to see if there is more upside to come.
Rather than being coy, I will say that there is plenty of upside possible for CAI International Inc (NYSE:CAP) and related stocks. The global economy is not firing on all cylinders yet. It is recovering, but slowly. We are not at the peak of this cycle, and these companies can benefit from further recovery and growth of the global economy.
CAI International is a company that deals in many aspects of the intermodal container business, including buying, selling, leasing, managing, and maintaining. Intermodal containers are those metal boxes that almost killed the A-Team in the modern movie. They store goods of all kinds, and are by far the most common way to ship large amounts of dry goods.
CAI is one of those companies which invite an exception to my rule about cash and debt. CAI has less than $20 million in cash, and almost $1 billion in debt. The debt-to-equity ratio is around 2.7. The company deals almost entirely with hard assets in the form of intermodal containers. These have a 20-year life, but depreciation rules will usually reduce the book value of those far sooner. The reason to do that would be to get the tax benefits of depreciation, which is a non-cash expense that helps reduce tax liability. The result of all this is that there are assets on the books that are worth nothing, no equity, yet still generate income. Hence, the reason for my somewhat perplexing retreat from despising companies with low cash and high debt.
CAI International Inc (NYSE:CAP) also has almost 35% in net margin, consistent profitability, and a PE ratio that is below peers. Most of the other intermodal companies have PE ratios at 10 or above. That means CAI still has some more room to run before it catches up. Despite the impressive run of recent days, it has further to go and that is just fantastic.
The recent earnings announcement explained some recent expansions that the company completed. It is not uncommon for CAI International Inc (NYSE:CAP) to buy the assets that it manages from investment portfolios. I see news like this fairly often, though some are small-scale deals. The company already has the containers from the most recent acquisition, which added to debt, in long-term leasing agreements.
That means they will provide revenue and cash flow immediately. The company also projects and increase in the use of intermodal containers for 2013, 6% vs. 4% in 2012. That means CAI is not the only company in the bunch to benefit.
TAL International Group, Inc. (NYSE:TAL) posted great results for 2012, and increased its dividend further. It now yields around 6%. The company has some of the same features as CAI. It has a debt-to-equity ratio above 4, and has over $200M in cash. This is again due to some of the containers on their books having zero value, but still bringing in money.
TAL has gross margin of over 80%, and net margin of around 25%. Net margin is lower than CAI, and it would be interesting to see if the company enacts some cost cuts and controls to fatten net margins. The company is reporting fantastic profits even without the higher net margins, so it probably is not a major issue for them.
TAL International Group, Inc. (NYSE:TAL) is the company to go with if you are looking for regular income, because a 6% dividend yield is phenomenal, especially with an improving industry outlook. Its PE is around 11, so it would not be undervalued compared to peers like CAI, but earnings are expected to grow as trade increases. CAI International Inc (NYSE:CAP) is the choice if you are looking for some capital appreciation. CAI is small right now, but TAL International Group, Inc. (NYSE:TAL) is a guide to where it might go in the future.