Air Transport Services (ATSG) is cruising forward with fleet modernization and expansion ventures. The company’s deepening involvement in the Amazon Air network presents a significant surge, although a soft airfreight demand casts a shadow over the horizon.
Catalysts Driving ATSG Forward
Air Transport Services’ dedication to enriching shareholders through buybacks is commendable. In a bold move in November 2022, ATSG reinvigorated its buyback momentum with a fresh $150 million share repurchase plan. By the closure of 2023, ATSG had proudly acquired a whopping 7.4 million shares.
The enhanced collaboration with Amazon is a game-changer for ATSG. In the upcoming months, Air Transport Services will be at the helm of operating 10 Boeing 767-300 freighters supplied by Amazon, with a probable 10 more in the pipeline. Riding on this development, ATSG has raised its 2024 adjusted EBITDA guidance by $10 million to approximately $516 million, anticipating a surge in flight opportunities from these new aircraft.
The promising expansion of Air Transport Services’ fleet is music to investors’ ears. By the tail end of 2022, ATSG had a total of 128 aircraft in operation (18 passengers and 110 freighters), a rise from 117 at the close of 2021. Rolling into 2023, the fleet scaled up to 129 aircraft (comprising 18 passenger planes and 111 freighters). The company has set its sights on wrapping up 2024 with 137 aircraft in service, spanning 118 freighters and 19 passenger planes.
Critical Challenges Ahead
Air Transport Services is currently grappling with the repercussions of feeble cargo aircraft demand. The dwindling interest in both the leasing sector and passenger airline operations is taking a toll on the company’s performance. Moreover, the persistent Israel-Hamas conflict is poised to further impact its financial outcomes.
Another cause for concern is ATSG’s liquidity standing. By the curtain call of the first quarter of 2024, Air Transport Services’ current ratio—an indicator of its liquidity—lingered at 0.5. A current ratio below 1 is less than ideal, implying a potential scarcity of capital to settle short-term obligations.
The company predominantly operates through two key segments—Cargo Aircraft Management (CAM) and ACMI (aircraft, crew, maintenance, and insurance) Services. Revenue from ACMI Services witnessed a 3.1% dip year over year to $323.8 million. On the other hand, CAM revenue shrunk by 5.8% to $105.5 million, while other operations experienced a 1.9% decline, falling to $109 million.
A glance at Air Transport Services’ stock performance highlights a substantial 36.3% surge in its shares over the past year, overshadowing the industry’s 16.1% appreciation.
Insightful Stock Analysis
Currently holding a Zacks Rank #3 (Hold), ATSG is navigating through a landscape of opportunities and challenges in the market.
Exploring Alternatives
For investors seeking greener pastures in the Transportation sector, standout options include SkyWest (SKYW) and Kirby Corporation (KEX), both boasting a Zacks Rank #1 (Strong Buy) presently. SkyWest is anticipated to witness a staggering earnings growth rate of 787% this year, accompanied by an impressive history of consistently surpassing earnings estimates. Meanwhile, Kirby Corporation is set to experience an expected earnings growth rate of 42.2%, backed by a solid track record of outpacing consensus estimates.
SkyWest has seen its shares soar by 98.4% in the past year, while Kirby Corporation recorded a 55.7% uptick during the same period, underlining their robust performance in the market.
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