(Triton) (TRTN)
Overview of the Company - Triton is a company based in Bermuda that purchases and leases out shipping containers. Its fleet by the end of the calendar year 2020 had grown to 3.7 million shipping containers and chassis. With about a 3.75 billion dollar market cap Triton claims that they are the global leader in the shipping container leasing and sales in the industry.
Fundamental Analysis - Triton has ramped up their business as they try to battle the supply chain bottlenecks. This is good for their business in a way, as they will be able to rent more containers. On the other hand, Triton does not want this situation to get too drastic - increase in prices due to supply shortages leads to stagflation and a slowing down of international trade. That would be extremely bad for a company that makes all of its money off of shipping companies that need to lease these containers and chassis. Ultimately, Triton is heavily reliant on a functioning global economy, as well as a productive one on land as their business relies on shipping on land as well.
How (TRTN) Stacks Up to Competitors - This will be a one on one comparison with another company that operates in the exact same industry based in Bermuda as well. Textainer Group Holdings Limited (TGH) is about half the market cap of Triton, but upon first glance is a much cheaper company currently, but TRTN takes the lead in terms of forward P/E. Profit margins and return on assets are very similar for both companies. Revenue growth is about the same for both companies but Triton is actually down year over year on their earnings. Both trade at less than two times book, but both companies have negative levered free cash flow. TGH has the lowest levered free cash flow at -1billion. Triton is doing a bit better and this is reflected in the fact that they do pay a dividend while Textainer does not. Triton's dividend yield is currently a little over 4%.
Bull Case - Triton may benefit from the supply chain issues temporarily. Assuming this issue gets resolved and the world economy is able to get back on its feet following the pandemic, Triton will be in pretty good shape. They run a solid business and pay a good yield. If they are able to keep on pace with earnings in the next year they will be trading at an egregiously low level.
Bear Case - Triton is too reliant on the state of the world economy. It is too early to assume all is well for the world's economic situation, especially with the uneven distribution of vaccines. Combined with inflation or worse - stagflation in the United States, Triton will need the US to lead the world in the recovery process. If the we are un able to do this, Triton will see slowing revenue. With the company already in negative levered free cash flow, consolidation will be likely for Triton in the coming years.
Valuation and My Price Target - Triton has consistently beat earnings and this short term supply chain issues will help earnings for TRTN. I think EPS can reach $7.1 in the next year and assuming Triton trades at a very low premium of 9.2x - Triton should be around $65.50 by the next year. This indicates 18% upside - not including the 4% dividend yield. However it is important to note that these earnings are reflective of an optimistic view of the world economy. However if you are one to believe that the world economy will be doing just fine, Triton is a company that will give that 4% base and great potential for capital appreciation thanks to how undervalued it is.
The Verdict - BUY HOLD SELL
Higher inflation levels in the United States will mean a larger reliance on global imports as American goods become more expensive. However as imported goods become more lucrative than ever, there will be a strain on overseas manufacturing. Combined with the uneven distribution of vaccines in other countries, we may witness a prolonged global supply shortage. If the world economy is going to be booming in the coming years, Triton is a great play for that investment thesis. But there are a lot of things that have to go right for this to happen. Triton is in an industry that will be around for the foreseeable future. The only downsides are short term volatility due to the pandemic and supply issues. If you need a spot for a solid dividend payer in your portfolio, but also want a little growth Triton is a company that you should consider. Granted you must be pretty optimistic about the world economic situation. With an estimated 18% ROI, I believe Triton is currently a BUY.
*all data provided by yahoo finance and nasdaq.com