Rising demand for e-commerce bodes well for Air transport services (ATSG – free report). However, escalating fuel costs, a major headwind, are limiting earnings growth.
Factors favoring ATSG
Despite the reopening of economies, the thirst for online shopping is rampant among consumers. The strength of e-commerce demand bodes well for the ATSG. As in the first quarter of 2022, the high demand for parcel deliveries via e-commerce should also contribute to the results of the second quarter of 2022.
Strong demand for mid-size freighters is also a positive for ATSG, which currently holds a No. 3 (Hold) Zacks rank. Driven by rising demand for these freighters, Air Transport Services released a bullish view of Adjusted EBITDA for 2022. ATSG expects the metric to be $640 million, or nearly $100 million above 2021 levels.
You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The performance of ATSG’s CAM (Cargo Aircraft Management) segment is also encouraging. After increasing by 11.2%. 12.2%, 18% and 21.8% in the fourth quarter 2020, first quarter 2021, second quarter 2021 and third quarter 2021, respectively, segment revenue increased 26.5% year-on-year other in the fourth quarter of 2021. Consistent with this upward trend, segment revenues increased by 28.4% in the first quarter of 2022. CAM segment revenues in the March quarter were boosted by a larger fleet of Boeing 767 leased externally compared to the level of the previous year. Aircraft leasing and related revenue from external customers increased 26% year over year in the March quarter
Capital expenditures are high at Air Transport Services, limiting net income growth. Capital spending for 2022 is expected to be $590 million, 16.9% higher than the reported 2021 figure. Higher fuel spending due to the current oil price spike is also hurting the bottom line. of ATSG. Clearly, operating costs increased by 30.3% in the first quarter of 2022, with fuel expenses increasing by 98.2%.
ATSG is heavily indebted. Obviously, its debt ratio is close to 1. A high debt ratio indicates that a company depends mainly on debt to finance its growth.
Actions to consider
Some higher-ranked stocks within the broader transportation sector that investors can consider include:
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