It’s commonplace in business strategy to think outside the box. But if you look in the right place, thinking inside the box can provide a big benefit, too.
That’s the idea with TAL International (NYSE:TAL), one of the world’s largest container leasing companies, with more than $1 billion in assets.
While its headquarters are in Purchase, N.Y., the company has a wide-reaching footprint, with 17 offices in 11 countries and 221 depot facilities around the world. It leases out intermodal freight containers to international shipping companies, who in turn contract with retailers and manufacturers that need to move stuff around.
Click to EnlargeIntermodal simply means big metal containers that can be plucked from a ship by a gantry and plopped onto a big-rig truck or a rail car without being unloaded. Freight containerization has been around since the 1950s, and outside of advances in tracking, the industry is largely unchanged from its roots.
TAL primarily leases out three types of containers to shipping lines: dry freight, refrigerated and specialized containers. Retailers like Best Buy (NYSE:BBY) and Wal-Mart (NYSE:WMT) use dry freight and refrigerated containers to ship electronics, consumer staples and frozen foods from shipping centers to local warehouse facilities near their stores.
TAL is the third-largest lessor of dry containers and the fourth-largest player in refrigerated containers. The company also is the No. 1 supplier of specialized containers, which are used for heavy and oversized cargo such as marble slabs, building products and machinery items — typically shipped to builders and large manufacturers.
TAL’s fleet consists of more than 1 million containers representing 1.6 million 20-foot equivalent units (TEU), which gives it about 12% of the global market share.
Founded in 1963 shortly after the development of containerized trade, the firm was a pioneer. It now serves virtually every major shipping line in the world and has set the bar for many of the operational standards the shipping industry utilizes.
Chief executive and president Brian Sondey has been in charge since 2004, but his tenure with TAL dates to 1998. Before that, he held executive positions with the company’s ex-parent, Transamerica Corp. With almost 15 years of experience in the container industry, Sondey has overseen tremendous growth in the firm the last several years.
Dry container leases represent about 65% of TAL’s total revenues, and low container production the past couple years and its industry girth have allowed it to have a dry container utilization rate above 90% since the first quarter of 2010.
One of the advantages TAL holds over peers are long-standing customer relationships. Shipping line customers like Maersk, OOCL, APL and COSCO are the largest in the industry and have been leasing containers from TAL for an average of more than 25 years. Those relationships have afforded it operational flexibility and market insight that few of its peers can claim.
TAL has been a terrific operator throughout its history, and more recently has grown net income by 43% annually the past five years and improved operating margins the last three.
The industry is looking bright as well. According to an analyst with Sterne Agee that follows the container shipping business, all the drivers of leasing strength continue to point in the right direction. Analysts expect container trade growth of 9% this year, with utilization rates near capacity.
TAL’s scale, extensive global operating infrastructure and strong customer relationships are what set this company apart from its peers. The current market landscape has benefited TAL as the weakness in the economy the past several years has driven shipping lines to focus on leasing containers rather than buying their own equipment.
Shares of the $1.1 billion outfit have ripped higher recently. Despite the recent movement, the stock is trading at just 8 times 2012 expected earnings of $3.80. Combined with a whopping annual dividend yield of nearly 7%, this market leader is poised to move.
Jon Markman operates the investment firm Markman Capital Insights. He also writes a daily trading newsletter, Trader’s Advantage, and a long-term investment service, Strategic Advantage. Check out his Top Stock for 2012 here.