What happened
Earlier today, a Wall Street analyst said Air Transport Services Group (ATSG 1.41%) was "misunderstood," and declared that the cargo operator is a good backdoor way to invest in e-commerce. Investors are taking notice, sending Air Transport shares up as much as 5%.
So what
ATSG ranks as the world's largest owner and operator of Boeing 767 freighters, providing aircraft leasing and air cargo services for a broad range of clients. Its largest customer is Amazon, operating part of the e-commerce giant's air cargo fleet.
On Wednesday, Oppenheimer analyst Ian Zaffino initiated Air Transport with an outperform rating and assigned a $27 price target to the stock. Zaffino called ATSG a "misunderstood play in the e-commerce value chain" with diversified revenue streams.
About 34% of ATSG's revenue comes from Amazon, with the Department of Defense accounting for another 30%. That gives investors a solid revenue base across different economic cycles, with plenty of upside from e-commerce growth.
Now what
ATSG has operated under the radar for a long time while providing a necessary service to government and corporate customers. It was the Amazon deal that thrust the company into the limelight, and investors are beginning to wake up to the opportunity.
Supply chains are evolving, and as they do, larger customers are looking to partner with businesses instead of just contracting out transportation and logistics services. That should create openings for a company like ATSG to build off of its work with Amazon and find new opportunities.
ATSG has the scale to do business with big clients, as well as a young and relatively fuel-efficient fleet to serve them. If the company can continue to execute well, there is room for further gains from here.
