Railroad and shipping volumes have steadily been increasing throughout 2010 and this trend is expected to continue into 2011. Various market factors such as increased demand for raw and finished good from emerging economies as well comprehensive trade policy improvements will sustain constant demand growth for international transportation.

IN PICTURES: 5 Tips To Reading The Balance Sheet

Shipping companies heavily depend on leasing containers as a means of transporting materials across international borders. Global demand for containers grew by approximately 8.6% in 2010 and is expected to increase by 7.7% in 2011.

TGH Leads the Way
Textainer (NYSE:TGH) is currently the industry leader, with approximately 20% of the market share, in terms of total number of containers owned. Within the last year TGH has appreciated by nearly 100% as earnings have increased every year since 2006. Textainer has shown strong revenue growth within the past year, while slightly cutting down operating expenses. Since rental contracts are typically for terms of three to five years, the increase in revenues is likely to persist moving forward. Over the past year, cash used for investing activities has increased by 524.3% as additional units were purchased.

TAL International Group (NYSE:TAL) has also experienced a similar year-to-date stock performance as industry conditions improved through 2010. Adjusted net income surged by 140% while revenues increased by only 15%. Similar to many companies in the railway industry, container lessors are implementing a more efficient business model to improve their margins. Compared to 2008 when the TAL International operating margin was 34.8%, it has since improved by nearly 990 basis points. Like, TGH, TAL heavily relies on long term leases for continued revenue growth - currently 66.0% of its lease portfolio is based on long-term lease agreements.

Small but Steady
SeaCube Container Leasing (NYSE:BOX) is a much smaller player in the container leasing market. After completing an initial public offering on November 2, 2010, SeaCube has failed to gain the same type of momentum as some of its larger competitors. The company holds $16.24 million of cash (with an additional $17.36 million in restricted cash) but has a total debt of $787.1 million, $148.2 of which is due within the next year.

Furthermore, many of its lease contracts will be expiring within the next five years, thus the future minimum lease revenue is estimate to fall from $53 million in 2011 to $12.9 million in 2014. BOX experienced an 8% decline in their top line for the nine months ended in September 30, 2010.

CAI International (NYSE:CAP), a small cap container operator and manager has appreciated by over 100% in 2010. CAI International leases intermodal containers to shipping, trucking and rail companies in a much small capacity than Textainer. The year-over-year income statement improvements appear very similar to that of the TAL and TGH; however, for a company of it size, CAP appears to be expanding its asset base at a faster rate. Textainer spend $181 million on the purchase of containers and fixed assets while CAI spent $104 million on containers. Given that Textainer has three times as many total assets and a market cap almost five times that of CAI International, the latter firm is making greater efforts to expand its operations.

The Bottom Line
Despite that smaller companies, if successful, are able to achieve faster growth rates, extensive entry barriers into this industry in the form of large capital expenditure requirements to purchase containers suggest that the larger firms are a superior investment. Nonetheless, the container leasing business has clearly outperformed the general S&P 500 index as measured by the SPDR S&P 500 ETF (NYSE:SPY) and the transportation index as measured by the iShares Dow Jones Transport Average ETF (NYSE:IYE). (For more stock analysis, see Transportation Growth Strengthens CP Railway.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Investing News

    Bank Stocks: Time to Buy or Avoid? (WFC, JPM, C)

    Bank stocks have been pounded. Is this the right time to buy or should they be avoided?
  2. Stock Analysis

    Why the Bullish Are Turning Bearish

    Banks are reducing their targets for the S&P 500 for 2016. Here's why.
  3. Stock Analysis

    How to Find Quality Stocks Amid the Wreckage

    Finding companies with good earnings and hitting on all cylinders in this environment, although possible, is not easy.
  4. Chart Advisor

    How Are You Trading The Breakdown In Growth Stocks? (VOOG, IWF)

    Based on the charts of these two ETFs, bearish traders will start turning their attention to growth stocks.
  5. Mutual Funds & ETFs

    Pimco’s Top Funds for Retirement Income

    Once you're living off the money you've saved for retirement, is it invested in the right assets? Here are some from PIMCO that may be good options.
  6. Chart Advisor

    Watch This ETF For Signs Of A Reversal (BCX)

    Trying to determine if the commodity markets are ready for a bounce? Take a look at the analysis of this ETF to find out if now is the time to buy.
  7. Investing News

    What You Can Learn from Carl Icahn's Mistakes

    Carl Icahn has been a stellar performer in the investment world for decades, but following his lead these days could be dangerous.
  8. Mutual Funds & ETFs

    ETFs Can Be Safe Investments, If Used Correctly

    Learn about how ETFs can be a safe investment option if you know which funds to choose, including the basics of both indexed and leveraged ETFs.
  9. Mutual Funds & ETFs

    The Top 5 Large Cap Core ETFs for 2016 (VUG, SPLV)

    Look out for these five ETFs in 2016, and learn why investors should closely watch how the Federal Reserve moves heading into the new year.
  10. Economics

    India: Why it Might Pay to Be Bullish Right Now

    Many investors are bullish on India for all the right reasons. Does it present an investing opportunity?
RELATED FAQS
  1. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
  2. Do ETFs pay capital gains?

    Exchange-traded funds (ETFs) can generate capital gains that are transferred to shareholders, typically once a year, triggering ... Read Full Answer >>
  3. How do real estate hedge funds work?

    A hedge fund is a type of investment vehicle and business structure that aggregates capital from multiple investors and invests ... Read Full Answer >>
  4. Are Vanguard ETFs commission-free?

    While some Vanguard exchange-traded funds (ETFs) are available commission-free from third-party brokers, a large portion ... Read Full Answer >>
  5. Do Vanguard ETFs require a minimum investment?

    Vanguard completely waives any U.S. dollar minimum amounts to buy its exchange-traded funds (ETFs), and the minimum ETF investment ... Read Full Answer >>
  6. Can mutual fund expense ratios be negative?

    Mutual fund expense ratios cannot be negative. An expense ratio is the sum total of all fees charged by an asset management ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center