Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche


Is GATX making money?

The GATX Corporation (NYSE: GATX) has caught Mr. Market’s attention. Notably, GATX’s share price rose to $97.06 on 10 June 2021 from $68.77 on 5 June 2020.

So what is GATX (GATX) and why are investors buying it? GATX leases cars and locomotives to railroads. For example, GATX leases over 118,000 rail cars and over 600 locomotives to North American railways.

Leasing equipment allows GATX to profit from railroads without the expense and hassle of owning the track and other infrastructure. Additionally, GATX can escape many government regulations, because it owns no track.

Besides rail equipment, GATX leases aircraft engines. Outside of North America, GATX leases rail equipment in Europe, India, and Russia.

The name GATX comes from the common acronym for General American Transportation Corporation. The General American Transportation Corporation is the old name for GATX. They paint the acronym GATX on North American rail cars.

The Value Case for GATX

The value case for GATX (NYSE: GATX) is simple. GATX is an obscure company in a drab and unfashionable industry most investors ignore – rail.

Yet GATX makes money. The company reported a quarterly operating income of $70.10 million and a quarterly gross profit of $127.60 million on 31 March 2021. Similarly, GATX reported a quarterly operating cash flow of $76.40 million, a quarterly financing cash flow of $1.039 billion, and a quarterly ending cash flow of $959.10 million on the same day.

Importantly, GATX’s moneymaking capacity grew during the pandemic year. For instance, GATX’s quarterly gross profits grew from $118.2 million on 31 March 2020. Similarly, the quarterly operating income grew from $118.20 million on 31 March 2020.

The quarterly operating cash flow grew from $53 million on 31 March 2020. Impressively, the quarterly ending cash flow grew from $570.70 million on 31 March 2020.

Conversely, the quarterly financing cash flow grew from $493 million on 31 March 2020. Comparatively, GATX’s total debts grew from $5.178 billion on 31 March 2020 to $6.773 billion on 31 March 2021.

Is GATX a Growing Company?

I think GATX (GATX) is a problematic stock because its quarterly revenues shrank from $308.9 million on 31 March 2020 to $305.80 million on 31 March 2021.

On the other hand, GATX experiences some revenue growth. Stockrow estimates its revenues grew by 5.57% in the quarter ending on 31 December 2020 but shrank by 1% in the quarter ending on 31 March 2021.

I believe the tiny level of growth gives GATX a low margin of safety. Another problem is the small amount of cash at GATX. GATX had $959 million in cash and short-term investments on 31 March 2021. The cash and short-term investments grew from $571 million on 31 March 2020.

The cash is a problem because GATX is a finance company. Normally, I like finance companies because they generate enormous amounts of cash. Yet, GATX generates tiny amounts of cash.

Overall GATX had $9.915 billion in Total Assets on 31 March 2021. The assets grew from $8.718 billion on 31 March 2020. Thus, GATX has a small value.

What Value Does GATX have?

I think GATX (GATX) has little value because of the low levels of growth and the lack of cash.

However, GATX will pay a 50¢ quarterly dividend on 30 June 2021. That dividend grew by 2¢ from 48¢ on 15 December 2020. Overall, GATX offered investors a $2 annual dividend and a 2.07% dividend yield on 10 June 2021.

Despite the dividend, I consider GATX a lousy value investment because of the lack of growth. Instead, I think GATX is a value trap because it makes some money and pays dividends.

In the final analysis, I think investors need to avoid GATX (NYSE: GATX) because Mr. Market overpriced it at $97.06 on 10 June 2021.