FreightCar America, Inc. (RAIL) is dealing with the downside of the rail car cycle. This Zacks Rank #5 (Strong Sell) is expected to see declining earnings over the next 2 years. FreightCar America makes railroad freight cars and parts and leases freight cars through its JAIX Leasing Company subsidiary.
It builds coal cars, bulk commodity cars, covered hopper cars, intermodal and non-intermodal flat cars, mill gondola cars, coil steel cars and boxcars.
It has facilities across the country in Alabama, Illinois, Nebraska, Pennsylvania and Virginia.
RAIL’s Best Year Since 2006 But…
On February 22, the company reported fourth quarter and full year results which were the best since 2006. Even allotting for the sale of its railcar repair and maintenance services, it was still a record year.
But, that is expected to change over the next several years. The railcar manufacturing business has always been cyclical and it is now heading into the “down” part of the cycle.
You can see the change in the earnings picture:
2015: $2.32 per share
2016 expected: $1.50 per share
2017 expected: $1.41 per share
Note that 2016 is an earnings decline of 35.3% year over year.
RAIL’s Backlog To Fall
The best indicator of the down side for RAIL is its backlog.
Year end manufacturing backlog peaked in December 2014 at 14,791. At the end of December 2015 it was 9840. Non-coal cars comprised 99.6% of the total backlog as of Dec 31, 2015.
I would expect it to continue to fall as the number of orders remains lighter than prior years.
Is RAIL Cheap?
RAIL stock has dropped to 2-year lows. But is it a bargain? They’re trading with a forward P/E of just 10 which seems cheap but with earnings expected to decline over the next 2 years, this could be a value trap.
For investors who are holding on through the down cycle, the company does pay a dividend, currently yielding 2.4%.
If you want to invest in the transportation area, you might want to consider Ryder System (R). It’s a Zacks Rank #3 (Hold) but analysts expect it to be growing earnings by 7.4% in 2017.
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