Commentators talk about "the transports" as though they were an undifferentiated block of companies that all move together. Really, nothing could be further from the truth. While railroads, trucking, shipping and air cargo all involve moving things from A to B, the details differ in crucial ways.

Said another way, there's precious little correlation between companies like Old Dominion (Nasdaq:ODFL), Union Pacific (NYSE:UNP) and Atlas Air (Nasdaq:AAWW), and shares of the latter have languished on a host of worries including the state of the Chinese economy. With better-than-expected results in the first quarter though, and an apparent undervaluation, it may be worth taking a closer look at these shares as a second half rebound story.

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Good News Top and Bottom in First Quarter
Atlas Air did well across its report in the first quarter. Operating revenue rose 21% on a year-to-year basis, and seems to have been fueled by a sizable growth in the charter businesses and some respectable progress in ACMI. Block hours (a measure of volume) rose 8% across the board, and the utilization did fall about 8% as the company put more planes into service.

Although operating expenses rose 20%, this business is structured in such a way that tiny margin improvements lead to significant growth in reported income. To that end, while operating margins improved only 20 basis points from last year, operating income jumped 25%. Keep in mind, though, that the company did see some benefits from a shift in maintenance timing - to the tune of about one-third of the printed per-share earnings beat.

ACMI Rebounding with Traffic
Atlas Air's largest business segment, ACMI, saw revenue grow 6% this quarter as both block hour volume growth and revenue per hour contributed similarly to revenue growth. This was what you'd call a back end-loaded quarter, as customers flew below their minimums in January and February, and then about 11% above them in March.

For better or worse, Atlas Air's volumes (and stock price) tend to track major air cargo statistics like those provided by ATA, IATA and Hong Kong Air Cargo Terminals Limited (HACTL). Perhaps it won't surprise readers to learn then that international traffic started picking up in March and has continued to look healthier in April.

It's anybody's guess as to whether this trend will hold (and/or improve), but that's the current expectation. China doesn't have much choice but to try to continue to stimulate export growth and improving demand in North America should help. Moreover, Atlas Air doesn't have quite the same exposure that FedEx (NYSE:FDX) or UPS (NYSE:UPS) have - package volume and package size are critical variables for these two companies, but Atlas Air's ACMI revenue is based on flight hours.

Charter Looking Better for Now
Atlas Air's charter business continues to be a variable that will (and should) concern investors. While AMC Charter revenue jumped 49% this quarter on a 27% increase in effective rates, this is a business that rests on the military. While there is still a lot of future deployment or redeployment left in regards to Afghanistan, this doesn't look to be a growth opportunity for all that much longer. That said, the company is in the midst of trying to build and grow a passenger charter business and this should be a more significant factor in future years.

SEE: Top 6 Factors That Drive Investment In China

Improving Efficiencies?
Atlas Air started the year with some concerns in the market about the pace of delivery and deployment for new Boeing (NYSE:BA) 747-800F planes. These new planes offer a variety of benefits to the company, including better overall operating margins. At this point, it looks like a lot of the uncertainties have been resolved and the company should be in place to reap a lot of benefits later in the year.

The Bottom Line
I have generally preferred Air Transit Services Group (Nasdaq:ATSG) to Atlas Air, but it's hard to argue with the operating leverage Atlas could bring from the new plane deliveries and the other business restructuring efforts that management has taken. Moreover, today's valuation (EV to 2012 EBITDAR) doesn't seem especially demanding, nor is it indicative of much confidence that air cargo traffic will grow in 2012.

By no means is this a safe stock, but if investors are looking to play a recovery in the Chinese economy or the global economy as a whole, Atlas Air should be a major beneficiary if those trends improve.

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Tickers in this Article: AAWW, FDX, UPS, BA

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