The uptick in e-commerce demand bodes well for Air Transport Services ATSG. However, escalated fuel costs, a primary headwind, are limiting bottom-line growth.

Factors Favoring ATSG

Despite economies reopening, the thirst for online shopping is rampant among consumers. E-commerce demand strength bodes well for ATSG. Akin to the first quarter of 2022, elevated demand for package deliveries via e-commerce should aid the second-quarter 2022 results as well.

Strong demand formidsize freighters is also a positive for ATSG, currently carrying a Zacks Rank #3 (Hold). Driven by the uptick in demand for such freighters, Air Transport Servicesissued a bullish adjusted EBITDA view for 2022. ATSG expects the metric to be $640 million, nearly $100 million above the 2021 levels.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of ATSG’s CAM (Cargo Aircraft Management) segment is also encouraging. After increasing 11.2%. 12.2%, 18% and 21.8% in fourth-quarter 2020, first-quarter 2021, second-quarter 2021 and third-quarter 2021, respectively, segmental revenues increased 26.5% year over year in the fourth quarter of 2021. In line with this uptrend, segmental revenues increased 28.4% in first-quarter 2022. Revenues from the CAM segment in the March quarter were bumped up by a larger fleet of externally-leased Boeing 767s from the year-ago level. Aircraft leasing and related revenues from external customers rose 26% year over year in the March quarter

Key Risks

Capital expenses are high at Air Transport Services, thereby limiting bottom-line growth. Capex for 2022 is projected to be $590 million or 16.9% higher than the reported number of 2021. The increase in fuel expenses due to the current oil price surge is also hurting ATSG's bottom line. Evidently, operating costs increased 30.3% in first-quarter 2022 with fuel expenses rising 98.2%.

ATSG is highly leveraged. Evidently, its debt-to-equity ratio is nearly 1. A high debt-to-equity ratio indicates that a company depends primarily on debt to finance its growth.

Stocks to Consider

Some better-ranked stocks within the broader Transportation sector that investors can consider are as follows:

Eagle Bulk Shipping EGLE sports a Zacks Rank #1 presently. EGLE has a pleasant surprise history, with his earnings having outperformed the Zacks Consensus Estimate in two of the preceding four quarters while missing the mark in the other two.

Shares of Eagle Bulk have gained more than 4% in the year-to-date period. Improved market sentiments surrounding the Drybulk market are aiding the stock. EGLE owns one of the largest fleets of Supramax/Ultramax ships, globally. Efforts to upgrade its fleet also bode well.

Capital Product Partners CPLP flaunts a Zacks Rank #1. CPLP has an impressive surprise history, with its bottom line having outperformed the Zacks Consensus Estimate in three of the preceding four quarters while missing the mark in one.

Shares of Capital Product Partners have rallied more than 25% in a year. Improved market sentiments surrounding the Drybulk market are aiding the CPLP stock.

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Air Transport Services Group, Inc (ATSG) : Free Stock Analysis Report
 
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