The shipping industry is full of misery these days, what with rates for tankers and bulk cargo carriers so low and numerous shipping companies finding their liquidity situation tightening badly. Container leasing a different matter entirely, though, and TAL International (NYSE:TAL) continues to build solid value for its investors.

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A Respectable Fourth Quarter
Most of TAL International's fourth quarter numbers were solid. Leasing revenue rose more than 31% from the year-ago period as leasing rates for containers have stayed quite healthy. Better still, TAL isn't frittering away this demand - adjusted EBITDA rose nearly 34%, while adjusted pre-tax income climbed more than 44%.

Slow Boats Mean Better Utilization
TAL International continues to see very strong utilization, meaning that most of its available containers are under contract. While the company changed the methodology it uses to calculate utilization, it also provided the relevant old data as well - reporting that utilization slipped just a bit (70 basis points), but still stands at an impressive 97.9% (or 98.6% by the new math).

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Strong utilization is a theme across the space, with rivals like SeaCube (NYSE:BOX), CAI International (NYSE:CAP) and Textainer (NYSE:TGH) also reporting utilization rates above historical trends.

Although shipping rates are weak, it seems to be more a byproduct of excessive ship capacity, as container ship volume in and out of ports has stayed relatively healthy. What's more, low per-day rates and high fuel costs are leading many shipping companies to slow their ships - tying up more containers at sea for longer periods.

Relatively Secure in an Insecure Market
With terrible operating conditions for shipping companies and heavy levels of debt throughout the industry, it's no surprise that bankruptcies and restructurings are cropping up. General Maritime declared bankruptcy in 2011, while Frontline (NYSE:FRO) had to conduct a major restructuring to avoid a similar fate. Neither of those companies are container ship operators, but the point stands that bankruptcy is now a real risk in TAL's addressable market.

The thing is, though, that TAL is not quite as vulnerable as bears might fear. The company's leases basically allow it to seize back its containers right off the ship if need be and the company is further covered by insurance in case of defaults. Moreover, with utilization rates so high, it is not all that difficult for TAL to re-let containers if, and when, the need arises.


The Bottom Line
TAL does spend quite a lot on capital expenditures, but has established a solid recent record of dividend increases. Utilization rates likely cannot go much higher (and will probably be lower in future years), but is a market that rewards scale and TAL has that as the fourth-largest container lessor (and largest among the publicly traded).

These stocks historically trade around seven times their forward EBITDA estimates. Assigning that multiple results in a target of nearly $42 for TAL. Add that to a dividend yield north of 5% and this is not a bad income-oriented stock pick today. (For related reading, see EBITDA: Challenging The Calculation.)

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At the time of writing, Stephen Simpson did not own shares in any of the companies mentioned in this article.