TAL International Group, Inc. engages in leasing intermodal containers and chassis worldwide. The company operates in two segments, Equipment Leasing and Equipment Trading. The Equipment Leasing segment is involved in the acquisition, leasing, re-leasing, and sale of intermodal transportation equipment, including dry freight containers, which are used for general cargo, such as
manufactured component parts, consumer staples, electronics, and apparel; and refrigerated containers that are used for perishable items comprising fresh and frozen foods. This segment also leases special containers, which are used for heavy and oversized cargo, including marble slabs, building products, and machinery; chassis that are used for the transportation of containers; and tank containers, which are used to transport bulk liquid products, such as chemicals. The Equipment Trading segment engages in the purchase of containers from shipping line customers and other sellers of containers, and resale of these containers to container traders and users of containers for storage and one-way shipments. As of December 31, 2012, the company’s fleet consisted of 1,201,683 containers and chassis, including 22,848 containers under management for third parties, representing 1,957,776 twenty-foot equivalent units. TAL International Group, Inc. was founded in 1963 and is headquartered in Purchase, New York.Analysis
Current Yield and Dividend Growth
TAL International currently pays a dividend of $0.70 per quarter for a $2.80 annual dividend. At the close of market on Friday, October 25th TAL’s price per share was $47.97. This gives the stock a current dividend yield of 5.84%. Normally I look for a dividend yield of at least 3%, so I will be very satisfied with this dividend yield from TAL.
In 2006, TAL International paid an annual dividend amount of $0.45 per share. The dividend trend has been up each year, except year 2008 and 2009 Pfizer cut their dividends. This gives TAL a 5 year annual compound dividend growth rate of 10.52%. TAL International has increased its dividend now four years. TAL´s dividend growth rate has been very variable in recent years, but If it will be steady for about 10% in the future, investors should be very happy.
EPS Growth
TAL's EPS has grown an average of 27.25% over the past 5 years, 18.94% in the past three years. Last year growth was 15.87%. TAL's EPS of development in recent years makes me convinced at the moment. Analyst estimates for 5 years earnigs growth rate per annum are 10% ( http://finance.yahoo.com/q/ae?s=TAL+Analyst+Estimates).
Net Income
TAL International's net income has increased by an average of 27.39% over the past 5 years, 22.04% in the past three years, and 18.60% in last year. Net income has same trend as EPS. Net income development in recent years also makes me convinced that TAL is a good investment for the future.
Revenue Growth
TAL International's revenue has increased 11.41% over the past 5 years, 18.67% in the last three years, and 14.03% on last year.
Outstanding Shares
TAL International`s amount of shares has varied a lot. From year 2006 those went down nicely, but on year 2010 those increased very much. I would like to see amount of shares go down every year, or at least stay on same level, because less shares outstanding, my shares are giving me a larger portion of the earnings.
Payout Ratio
TAL International's dividend payout ratio has been in the past 5 years by about 60.23%. This means that TAL has distributed a bit more as half of the profits to shareholders. With over 5% dividend yield, I think, that TAL`s payout ratio are in good level now.
ROE
TAL International's ROE has been between 17% and 22% over the past 5 years, which are okay for me.
Current Ratio
Current ratio measures the company's ability to meet short-term obligations. TAL International has current ratio 2.15 at the end of 2012. This means that the funds will be able to cover 215% of current liability obligations. I usually like the current ratio is greater than 1, so TAL looks fine for me in this case.
Net Profit to long term debt
This number tells me how many years it will take to pay off the current long term debt of the company by using all net profit into it. I want this ratio to be less than 5, because the company is able to pay for all long-term debt from less than five years and on my opinion then company don´t have too much debt. TAL International`s long term debt are much over 5 times net profit on last 7 years, on 2008 it was even 38.49. In the last 8-year average is 24.78, last year it was 19.51. Last years it has go down a bit, but I would like to see that tend to be faster.
Value
To found out share fair value I mainly use six different methods. (http://www.passive-income-pursuit.com/search/label/stock%20valuation%20method).
Average P/E Ratio
TAL International`s current P/E are 11.3, which are more close to it`s historical 5 years average high (14.37) but more near 7 years average low (9.28) as 7 years average high (17.19). By calculating using estimated EPS $4.34 for year 2013 and the average 5-year low P/E ratio shares fair value will be $26.80. Using the 7-year average low P/E ratio, fair value will be $40.28.
Average Dividend Yield
TAL International`s current annual dividend are $2.80. At the close of market on Friday, October 25th TAL’s price per share was $47.97 This gives the stock a current dividend yield of 5.84%. Average 5 years high dividend yields has been 9% and average 7 years high dividend yields has been 7%. Those dividend yields gives share fair value $32.78 for 5 and $37.87 for 10 years.
Average P/S Ratio
TAL International`s current P/S ratio are 2.47 with revenue estimates for year 2013 (661.83M). Average 5 years low P/S ratio are 1.06 and average 7 years low P/S ratio are 1.36. By calculating using estimated revenue for year 2013 and the average 5 years low P/S ratio fair value will be $20.56. Using the 7 years average low P/S ratio, fair value will be $20.48.
Discounted Cash Flow
Analyst estimates for 5 years earnings growth rate per annum are 10%. I will use on my calculation 66% of that, which are 6.6%. Then I assume that continue growth after 5 years will be 3%. I use discount rate 10% and EPS $4.26. That will give me share fair value $72.98.
Discount Rates
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8%
|
9%
|
10%
|
11%
|
12%
|
NPV of Future EPS
|
$102.69
|
$85.36
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$72.98
|
$63.70
|
$56.49
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Dividend Discount Model
TAL International`s current annual dividend are $2.80. I assume that TAL will be able to grow dividends for the next 5 years at the lowest of the 1, 3, or 5 year growth rates or 15%. In this case that would be 10.52%. Then I assume that after 5 years grow rate will be 5%. To calculate the value I used a discount rate of 10%. That will give me share fair value $68.11.
Discount Rate
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8%
|
9%
|
10%
|
11%
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12%
|
NPV of Future Dividends
|
$113.41
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$85.21
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$68.11
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$56.69
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$48.54
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Future Price
TAL International has EPS 4.26 (ttm). When I calculate TAL`s future price with analyst estimate for 5 years EPS growth and using low P/E ratio last 5 years, I came for price $42.36.
Conclusion
TAL International is one of the oldest and largest intermodal container leasing companies, controlling roughly 13% of the entire market. Furthermore, with asset and liability matching TAL is more of a finance company than an industrial enterprise. Also a debt is not unusual to the this industry segment. Based on my analysis, I think TAL are currently overvalued, and I am not prepared at this time to buy more shares of TAL, except those which I just bought couple of days ago. If the price would fall down to near $40, then I might be interested add some more to my portfolio. I will wait and look if TAL are able to reduce it`s long term debt, if not, then I perhaps will sell my position of TAL.
Disclosure: I`m long TAL.
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