advertisement

---

Morgan Keegan & Co. Inc. analyst Art Hatfield reaffirmed his “outperform” rating on GATX Corp. Monday, saying that the company’s fundamentals haven’t changed “materially” since it reported fourth-quarter earnings nearly two months ago and that the sell-off in GATX stock is “overdone.”

GATX, which provides lease financing and related services to the rail, marine and “specialty” sectors, announced on Jan. 23 that it expected to earn “in the area of” $2.50 per diluted share this year compared with $3.49 per diluted share in 2008. Although GATX executives noted in January that there was “substantial variability around” their estimate, Hatfield said in his research report that he is confident GATX will report earnings “in that guided area.”

“Indeed, we expect volatility and uncertainty to underlie most of the company’s projections for the rest of the year, but we are encouraged by no fundamental deteriorations in the markets,” wrote Hatfield, who estimates GATX will record 2009 earnings of $2.44 per diluted share.

GATX’s stock price fell 15.3 percent in 2007, another 15.6 percent last year and has fallen nearly 40 percent so far this year, Hatfield noted. The stock closed Monday at $19.64, up $1.20 or 6.5 percent from Friday’s close of $18.44. The stock hit its 52-week low of $13.63 on March 9.

Hatfield believes the company’s stock, along with the stocks of other transportation leasing companies, has been oversold. Although rail-traffic volumes will continue to weigh on GATX’s primary rail-car leasing business, the company is “well positioned” given management’s “disciplined approach to its rail portfolio,” Hatfield wrote. GATX wasn’t too aggressive during the ethanol boom, Hatfield said, only buying new rail cars from manufacturers “at attractive rates.”

In its January earnings release, GATX reported that rail-car lease renewal terms averaged 63 months in 2008. By extending renewal terms in recent years, about 15,000 cars — or 13 percent of GATX’s North American fleet — are up for lease renewal this year compared with an average of 19,000 cars during the past three years, Hatfield noted.

“We expect GATX to continue to manage its portfolio to minimize the number of contracts that come up for renewal each year, which provides some downside protection in a market downturn but also provides a ceiling of sorts on the upside,” he wrote.

— By Desiree J. Hanford. A Chicago-based free-lance writer, Hanford covered the equities market, including transportation, for Dow Jones & Co. for 10 years.