Air Transport Services (ATSG) is soaring high on the wings of fleet modernization and expansion endeavors. Navigating the skies of opportunity, ATSG finds itself in the enviable position of expanding its role within the Amazon Air network – a strong gust behind its forward momentum. However, like turbulence in a clear sky, weak airfreight demand poses a significant challenge.
The Winds Beneath ATSG’s Wings
Commemendably, Air Transport Services remains steadfast in creating value for its shareholders through share buybacks. In a bold move in November 2022, ATSG refueled its buyback engine with a fresh $150 million share repurchase authorization, heralding its commitment towards enhancing shareholder returns. By the culmination of 2023, ATSG had bought back a commendable 7.4 million shares.
Amidst this promising journey, the expanded collaboration with Amazon sets a strong tailwind for ATSG’s flight path. Stepping into the summer airspace, Air Transport Services will be controlling 10 Boeing 767-300 freighters provided by Amazon, with the promise of potentially adding 10 more aircraft to its fleet. With this strategic alliance, ATSG has raised its 2024 adjusted EBITDA guidance by $10 million to approximately $516 million, anticipating heightened flying opportunities stemming from these aircraft.
The horizon for Air Transport Services shines bright, mirroring the glimmering wings of its expanding fleet. By the twilight of 2022, ATSG boasted a total of 128 aircraft in service, comprising 18 passenger planes and 110 freighters, a leap from 117 aircraft at the close of 2021. The aerial fleet grew further by the end of 2023 to 129 aircraft, with 18 passenger planes and 111 freighters making up its ranks. Anticipations soar even higher as the company envisions concluding 2024 with 137 aircraft in service, including 118 freighters and 19 passenger planes.
Navigating Turbulence
Despite the clear skies, Air Transport Services finds itself navigating through clouds of challenges due to subdued demand for cargo aircraft. The dwindling interest in both the leasing segment and passenger airline operations casts a shadow over the company’s performance. Furthermore, the ongoing Israel-Hamas conflict looms ominously on the horizon, set to potentially impact its results.
A point of concern is ATSG’s liquidity position, flagging a cautionary signal for investors. As of the close of the first quarter in 2024, Air Transport Services’ current ratio clocked in at a worrisome 0.5. A current ratio below 1 sends distress signals, suggesting a lack of sufficient capital to honor short-term debts.
Operating principally through two reporting segments – Cargo Aircraft Management (“CAM”) and ACMI (aircraft, crew, maintenance, and insurance) Services, ATSG seems to be weathering some challenges. Revenue streams from ACMI Services faced a 3.1% dip year-over-year, settling at $323.8 million. Simultaneously, revenues from CAM segment observed a 5.8% contraction to $105.5 million, while other operations witnessed a 1.9% decline to $109 million.
A glance at Air Transport Services’ price trajectory unfurls a noteworthy tale of growth, with its shares surging by an impressive 36.3% in the past year, outpacing the industry’s 16.1% climb.
Image Source: Zacks Investment Research
Insight into ATSG’s Zacks Rank
Presently, ATSG holds a Zacks Rank #3 (Hold), shedding light on the nuanced investor sentiment towards the company.
Exploring Potentials in the Industry
For investors eyeing promising stocks in the transportation sector, consider setting your sights on SkyWest (SKYW) and Kirby Corporation (KEX), both currently boasting a Zacks Rank #1 (Strong Buy). Notably, SkyWest exhibits an anticipated earnings growth rate of a staggering 787% for the ongoing year.
Among these, SkyWest shines bright with its impressive history of exceeding earnings estimates in each of the past four quarters, springing an average surprise of 128%. The stock of SkyWest soared by an impressive 98.4% in the previous year.
On the other hand, Kirby Corporation unveils a projected earnings growth rate of 42.2% for the current fiscal year. Gliding smoothly, Kirby has demonstrated a commendable track record in surpassing the Zacks Consensus Estimate consistently over the trailing four quarters, boasting an average beat of 10.3%. Kirby’s shares have ascended by 55.7% over the past year.
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