A Supply Chain Play With Insider Buying

You never know, it could be a good sign. The stock market dropped a lot, and a lot of corporate insiders dropped a lot of money buying their stocks. There were close to 1,000 insider buy transactions last week, exceeding $215 million.

Through the blizzard of buying, we see Air Transport Services Group, Inc. (ATSG) as one of our favorites for a couple of reasons. First up, unless you live in Ted Kaczynski’s cabin, you’ve heard of the supply chain crisis plaguing companies and consumers worldwide.

Air Transport Services engages in the aircraft leasing and air cargo transportation services in the United States and internationally. ATSG offers its services to delivery companies, air transportation, air express integrators, airlines and governmental agencies, e-commerce, package delivery, freight forwarders, and logistics industries.

According to Newsweek, the supply chain disruption could last into 2023, keeping businesses like Air Transport Services busy for the foreseeable future. (1) Perhaps, that’s why a pair of ATSG insiders bought the Integrated Freight & Logistics company’s stock last week.

President, David Soaper purchased 40,000 shares at $24,96 for a little less than $1 million. Chief Financial Officer (CFO) Quint Turner’s buy was small by comparison, 992 shares at $25.10 for $24,899, but both are telling for different reasons. (2)

President Soaper’s trade was his first. (3) Whereas CFO Turner has been a habitual seller. (4) Soaper’s virgin buy was close to seven-figures. We consider purchases of that size to be an indication of commitment/conviction. It’s hard to believe the person running the show would buck up $1 million if they weren’t believers in the company’s prospects, most likely the state of the supply chain at the moment.

Meanwhile, Turner had what we call a change of heart. Sell, sell, sell, sell and then seemingly out of nowhere and out of character, a buy, no matter how small. Twenty-five thousand might be all Turner has available. We don’t know. What we do know is that he sold more than $2 million uninterrupted in the last five years and suddenly became a buyer.

We also know that Industrials company recently reported earnings that were considerably better than expected. Earnings per share (EPS) came in at $0.60 compared to the Zacks’ consensus of $0.44 per share. (5) Shareholders could see continued growth in Air Transport Services’ profits as Chief Executive Officer (CEO) Rich Corrado says, “The revenue growth we achieved in the third quarter added to the accelerating pace we saw in the second, as our aircraft leasing and airline businesses delivered sharply improved results versus a year ago. We continue to book and complete orders for freighter leases and purchase more feedstock aircraft to meet strong lease demand over the next several years.” (6)

At the moment, Wall Street forecasts EPS of $1.88 for next year, up from this year’s $1.68 consensus. In the last five years, ATSG traded with an average price to earnings ratio (P/E) of 19.88, as high as 37.86 times sales and as low as 11.64.

With the five-year P/E history in hand with 2022’s consensus estimate, we can create a potential 12–18-month price range for Air Transport Services Group.

  • High P/E: $71.18
  • Low P/E: $21.88
  • Average P/E: $37.37

ATSG trades at $26.76 as we type with a one-year consensus price target of $33.17.

Overall: Air Transport Services Group, Inc. (ATSG) could be a case of the right company in the right place at the right time due to supply chain constraints. Based on next year’s earning expectations and the company’s five-year P/E history, ATSG shares appear to have more upside than downside potential.

ATSG could be appropriate for investors with an average risk tolerance who seek exposure to supply chain stocks.

 

1 – https://www.newsweek.com/worldwide-supply-chain-shortages-could-persist-until-2023-spending-outpaces-supply-1649364

2 – https://www.secform4.com/insider-trading/894081.htm

3 – https://www.secform4.com/insider-trading/1695471.htm

4 – https://www.secform4.com/insider-trading/1258198.htm

5 – https://finance.yahoo.com/news/air-transport-services-atsg-q3-005612034.html

6 – https://finance.yahoo.com/news/atsg-reports-record-third-quarter-202900092.html

7 – https://finance.yahoo.com/quote/ATSG?p=ATSG