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No. of Recommendations: 16
A couple years ago, companies making oil tank railroad cars attracted investors due to the oil boom and demand for transport where pipelines were non-existent or operating at full capacity. Warren Buffett’s Berkshire Hathaway had its own Chicago-based Union Tank Car Company, which has realized record high sales. Robert Rodriguez’s FPA invested in top-notch Trinity Industries Inc. (TRN), a value buy back then. Carl Ichan’s American Railcar Industries Inc. (ARII) attempted to acquire competitor Greenbrier Companies (GBX).

Here’s a quick update and look at this sector, i.e., Trinity Industries Inc. (TRN) ; American Railcar Industries Inc. (ARII); Greenbrier Companies (GBX); and FreightCar America Inc. (RAIL).


Market Cap 4.26B 968.74M 904.51M 312.40M
Revenue (ttm) 4.12B 761.09M 1.76B 327.25M
Net Income (tm) 318.20M 86.97M -11.05M -7.97M

52 wk High 56.92 47.94 33.57 27.09
Closing Price 54.59 45.37 32.22 25.93
52 wk Low 34.57 29.86 16.64 16.53

EPS (TTM) 4.21 4.07 -0.41 -0.67
Trading< 14x Earnings 58.94 56.98 NA NA

EV 6.84B 1.07B 1.23B 218.77M
EBITDA 912.00M 174.82M 144.65M -961.00K
EV/EBITDA (ttm) 7.50 6.14 8.52 -227.65
Trading< 7x EV/EBITDA 52.50 42.98 59.64 NA

PE 12.96 11.14 NA NA
PEG < 1 1.17 0.77 1.21 -15.98
Earnings Growth (5 yr) 10.00% 15.00% 10.00% 3.00%

Book value < 2.2 1.87 2.39 2.09 1.52
P/S < 1 1.03 1.30 0.51 0.95

Operating Margin 17.14% 19.45% 5.88% -3.20%
Profit Margin 8.10% 11.43% -0.63% -2.43%

FCF (ttm) -35M 16M 44M -64M
FCF Yield (ttm) NA 10.02% 4.86% NA

Cash 498.60M 115.02M 97.43M 97.99M
Total Debt/Equity < 40% 116.81% 47.39% 92.40% NA
ROE 14.40% 22.76% -1.18% -3.78%
Dividend 0.60 1.00 0.00 0.24
Dividend Yield 1.10% 2.10% 0.00% 0.90%
Payout Ratio 11.00% 25.00% 0.00% NA

Over the recent 52-week period, all of the above companies except RAIL have outperformed the S&P 500.

At this time with all the above companies hovering near their 52-week highs, only ARII looks like an acceptable value candidate. TRN is on the borderline; the total debt/equity of 116.81% stands out. According to Timothy Wallace, the TRN Chairman, CEO and President, in the Q3, 2013 earnings conference call:
Over the last decade, we've spent the majority of our resources building our leasing fleet and our leasing platform, and we didn't do a lot of acquisitions during that time period. Over the last couple of years, as the economy has improved, we began to acquire companies that we saw a really nice fit in our portfolio. As our backlog has improved and the financial metrics of the company have substantially improved, we're thinking bigger and larger in terms of acquisitions, and we're not really interested in the quantity that we would do. So we're not trying to do a whole lot of them. We're more interested in the quality and the value that we can bring. And so we have -- like I said, we brought on resources, we've worked with the last couple of acquisitions that we've done, we have an external resource that's really perfected our processes in integrating companies successfully, we acquired a public company maybe 3 years ago and integrated that company with the assistance of this external consultant and it worked really nice for us. So we're really in a good position to begin to move forward in this area.

The Association of American Railroads provides a plethora of data, showing the substantial growth trend of moving crude oil by rail, dated December 2013:

A recent heads up analysis by Chicago-based PLG Consulting Inc. related the following:
o At present, tank car companies cannot make oil tank cars fast enough.
o While a lack of pipeline capacity has driven much of the crude tank car boom, pipelines are expected to catch up quickly.
o Currently, pipeline capacity is 565,000 barrels per day, and rail is 925,000.
o Moving crude oil by rail costs 50 to 100 percent more than by pipeline, but it takes a fraction of the time—roughly six days by rail versus 20 days by pipeline.
o Options will soon be available for all shippers, who will not be tied to rail and pipeline.
o By 2015 pipeline capacity and rail capacity will be equal, both able to move 975,000 barrels per day.

It’s also unclear whether or not government regulators will require tank car makers and lessors to retrofit older tank cars to meet new safety standards due to the Quebec derailment disaster last July that killed more than 40 people. An August 2013 class action lawsuit filed in Quebec identified tank cars supplied by Union Tank Car and GE Capital Railcar Services, among others.

Rail car makers are cyclical industries that demand investors' vigilance and attention to market conditions as well as regulatory changes.

Another means of transport benefiting from the U.S. oil boom is tanker barge transportation. The Bakken Shale field has reversed the inland flow of oil via tanker barges between the U.S. Gulf Coast and Midwest. Kirby Corp (KEX), the largest operator of US inland tanker barges, has reaped the rewards of this trend and has a fleet of almost 900 of these vessels that can transport more than 17 million barrels of liquid hydrocarbons. TRN also has an Inland Barge Group and has successfully converted manufacturing capacity of dry cargo barges to tank barges.

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