Despite ongoing growth in e-commerce and strong demand for cargo freighters, Air Transport Services Group (ATSG) has struggled to much headway this year. The shares have rebounded some since late July, but they’re down about 6% since my last update, and the company lags other transports like Atlas Air (AAWW), Deutsche Post DHL (OTCPK:DPSGY), FedEx (FDX), and UPS (UPS) on a year-to-date basis as well.
I believe at least some of the lagging performance has been due to the negative impact on the business from weaker passenger-related leasing revenue (tied to COVID-19), but that headwind should ease from here. In the meantime, the company not only continues to find more customers for its freighters, driven by strong e-commerce traffic, it’s making a sizable commitment to further passenger-to-cargo conversions in the coming years, as well as leveraging opportunities to serve an aging B757 cargo fleet with A321 conversions from its PEMCO joint venture.
I still see fair value in the low-to-mid-$30s, but this is a difficult company to model given frequent changes to the capex plans, and it’s not a particularly popular stock on the Street despite its leverage to ongoing e-commerce growth and Amazon (AMZN) in particular.
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Air Transport Services Group: Leveraging Strong Air Cargo Demand
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