This Boring Stock Could Be a Cash Cow

Textainer Group Holdings (TGH) purchases, leases, and resells marine cargo containers. It's not a flashy tech company, but its numbers show a solid and profitable business.

In this video clip from "The Rank," recorded on Feb. 14, Motley Fool contributors Tyler Crowe and Jason Hall discuss some reasons to take another look at this "boring" business.

Tyler Crowe: The simple quick and dirty on Textainer Group Holdings is they own, and lease, and sell shipping containers. It sounds like an extremely boring business. It's not exactly headline-grabbing, but it is extremely interesting business, especially in the time of supply chain woes and shipping bottlenecks around the world. It's a company I've followed for a while. It's a company I didn't own for some time and very much like anything infrastructure, hard asset, commodity, we went through this very long deep cycle through the 2010s. It started off with the Chinese commodity boom and the infrastructure boom that happened early on and then as the decade moved on, that busted, and commodity prices, not just oil, we're talking about metals and a lot of things and shipping containers and the movement of goods got wrapped up in it. We saw a massive decline. As a result, prices went down, things were oversupplied. Right around 2016, there was a big Chinese shipping company bankruptcy. It left stranded containers worldwide and it almost brought Textainer to bankruptcy. But that moment was like a catalyst for the entire industry which has resulted in major consolidation of a lot of inventory of containers have basically gone the wayside. We're back on the up-and-up enough where pricing is considerably better. Textainer's fleet personally has gotten much newer, so it has a much longer lease life. Its balance sheet has improved considerably. Just to give an example of some of the gains that we're seeing more recently, let me just make sure I get the number right. From fiscal 2020 to fiscal 2021, earnings per share are up 245%. This just gives you a rough idea of No. 1, how bad shipping was in 2020 and how much better that's been getting. They have a better return on equity of about 21% right now. Pretty high-return business for something that is pretty simple.

Jason Hall: I'm going to share a chart here which really supports what you're talking about, Tyler. It's also a cash cow business. Revenue over the trailing 12 months, over $800,000, almost $500 million in operating cash flow. The simple reason I rated it as low as I did is as much as there's been a lot of consolidation in the industry, probably is a lot healthier right now, it's still very cyclical and I'm just so gun-shy. I'm so gun-shy about when we're going to see a peak in the cycle. Because then you end up with five percent surplus containers and prices fall 10 percent. It undercuts so much of the profitability. I think this is one of the strong companies now. The balance sheet so much better than it was. But I always struggle with projecting these kind of industries and that's why I rated it as low as I did.

Crowe: I was looking at and just like you're saying it's a cash cow and since that Chinese shipping company went bankrupt back in the 2016, how much Textainer's basically brought their cost under control. Right around 2016, its costs as a percent of rental income were about 18% and now they're about 3. They've gone from an interest rate on their debt of about 3.9 to 2.6. It gives you two really good, healthy markers of how much cost they have bring out of the business, and how much good credit quality can really save you money over the long term.