TAL International Group, Inc. (TAL) recently delivered an outstanding second quarter in which EPS more than doubled and came in 21% above the Zacks Consensus Estimate. It was the company’s 6th consecutive positive earnings surprise.
Analysts have been revising their estimates significantly higher off of the strong quarter, sending the stock to a Zacks #1 Rank (Strong Buy).
Management also raised its quarterly dividend for the 7th consecutive time. It currently yields an attractive 6.7%. Valuation is attractive too, with shares trading well below the industry average.
Company Description
TAL International Group, Inc. leases intermodal freight containers and chassis with 18 offices in 11 countries and approximately 219 third party container depot facilities in 39 countries. Its global operations include the acquisition, leasing, re-leasing and subsequent sale of multiple types of intermodal containers.
The company is headquartered in Purchase, New York and has a market cap of $1.0 billion.
Second Quarter Results
TAL reported excellent second quarter results after the closing bell on July 27. Earnings per share came in at 99 cents, crushing the Zacks Consensus Estimate of 82 cents. It was an increase of over 100% from the same quarter in 2010.
Revenue surged 37.6% year-over-year to $120.221 million driven by a 44.4% increase in operating lease revenue. The utilization rate of its container fleet averaged an outstanding 98.6% in the quarter.
Adjusted operating jumped a remarkable 96.0% as the company leveraged its fixed expenses.
Outlook
Management is bullish that business will be strong throughout the rest of 2011. In the second quarter press release, CEO Brian Sondey stated that “[i]n general, we expect our market to remain favorable for the rest of the year. The supply / demand balance for containers remains generally tight, new container prices remain historically high, and we expect most of our customers to remain cautious about placing large orders for new containers. As a result, we expect our key operating metrics to remain strong throughout 2011.”
Analysts have been raising their estimates higher for both 2011 and 2012, sending the stock to a Zacks #1 Rank (Strong Buy). The 2011 Zacks Consensus Estimate is now $3.45, corresponding with 59% EPS growth over 2010. The 2012 consensus estimate is currently $3.71, corresponding with 7% EPS growth.
Consensus estimates have been consistently moving higher over the last several months as TAL has delivered 6 consecutive positive earnings surprises:
Dividend
TAL recently announced yet another hike to its quarterly dividend. This marks its seventh consecutive quarterly dividend hike after the company slashed it during the Great Recession.
It currently yields a juicy 6.7%.
Valuation
Shares of TAL are down almost 20% from their 52-week high due to fears of a slowdown in economic activity. Based on analysts’ growth projections and management’s bullishness, these fears may be overblown for TAL.
Valuation looks very attractive with shares trading at just 8.9x 2011 earnings, a significant discount to the industry average of 19.2x. It sports a PEG ratio of 0.8 based on a 5-year growth rate of 11.7%.
The Bottom Line
If another recession is right around the quarter, TAL would be one of the first stocks to sell. However, with the company continuing to churn out strong earnings surprises and analysts continuing to raise their estimates, TAL is showing no signs of slowing down anytime soon.
Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research.
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