I Think Trinity Industries Will Soar Once Again

Think back to 2003. 50 Cent was topping the charts with his Get Rich or Die Tryin album and Martha Stewart was being indicted for insider trading.

Besides late last year, that was the last time Trinity Industries (TRN) traded around this price. Trinity has gotten beaten up over the past year as the global growth story came crashing down and commodities tumbled at the end of 2008. The plunging price of oil crushed the demand for TRN's high growth wind tower business while the decimation of commodity prices, the global growth story and plunge of Baltic Dry Shipping Index all contributed to the slowing in demand for Trinity's rail car business.

Would I ever recommend a stock on the sole basis it will benefit from the recent stimulus passed by Congress? Absolutely not, but I do think that all the negativity towards TRN assumes zero benefit from this latest stimulus bill. Let's look at key parts of TRN's business: rail, construction including cement manufacturing and highway construction along with their wind tower unit. If Obama delivers on his infrastructure promise, Trinity is well positioned to get a piece of the pie. This should help offset the decrease in demand for their main rail car business.

In addition, I don't believe TRN's earnings will decline 75% in 2009 as predicted by many analysts. So what do I think is the potential value of the stock?

Let's assume that earnings decline 40% in 2009 and a P/E ratio of 8 for valuation purposes. You are left with earnings per share of $2.40 in 2009 and a stock price of $19 dollars, more than 70% higher than today's price.

Long term: inflation and skyrocketing oil prices could send this stock soaring again as commodities would benefit and wind energy demand would gather steam again, but I want to ignore that scenario for my current analysis. Instead, let's assume 10% growth in earnings per share from my 2009 estimate of $2.40 for years 2010-2013. You are left with earnings per share of $3.51 in 2013 and a stock price of $28.08 assuming a P/E ratio of 8.

This is even ignoring the dividend of 2.58% per year which provides you no loss even if the stock drops 12% from its current levels! Sounds like a good deal to me.

Now I have gone through considerable pain being long TRN from almost $19 a share, but it is a solid company with a steady dividend and worth having in your long term portfolio. I expect some further pain for TRN as the global recession works itself out, but the risk/reward is starting to become extremely attractive for Trinity Industries. I have 75% of my desired position, and I will buy on weakness. Like 50 cent says, I am going to " Get Rich or Die Tryin" with TRN .

Here is a link to my kaChing portfolio.

Disclosure: long TRN

Comments

[redbaron:]

Hope you are right, Dan. I also own the stock.

Feb 16 08:15 AM

[Stone Fox C...:]

11 seems to have strong support, but the chart doesn't look that exciting otherwise. With China starting to ignite growth again, I'd expect TRN to rebuild as oil will surely start moving up. Not sure TRN is the best play, but it will definitely be a good play.

Feb 16 03:54 PM

[Marcap:]

On the surface, Trinity Industries does indeed appear to be a gem ready to skyrocket. It has a somewhat solid Balance Sheet, and for the past 3-4 years, has shown consistent rising profits with corresponding increases to S/H equity. And with the stock currently trading at less than 50% of book value, it would appear to be a real bargain. Having said that however, I would be very concerned about the very recent disposition of shares by both insiders and institutions. Do they know something that the rest of us are not privy to? Something just does not smell right.

Feb 16 04:00 PM

[TickerMonkey:]

Failure to mention the liquidation of Gendell helps me understand how you paid $19. As of Friday's 13F-HR Jeff has effectively sold 8,488,389 shares in order to meet redemptions/ liquidations in and of two of his funds. I would think the market maker had to take on much of that stock. Those shorting into Gendell's misfortune should be covering now as there is not much selling pressure left. Failure to do so could result in the market maker reversing their fortune for them as they look to raise the ask up to offload their recently acquired inventory of TRN stock. At least that's how I see it.

As of 2/14/09
TRINITY INDS INC COM 896522109 5,843 370,751 SH SOLE

As of 9/30/08
GENDELL, JEFFREY L. 8,859,140 11.14 $227,945,672 30-Sep-08

Feb 16 05:32 PM

[Chris Lau:]

Dan, well-written. You isolate some external factors that are not yet known, to reach a reasonable estimate.

will you average down at these levels? Chris

Feb 16 06:35 PM

[Dan Carroll:]

Chris, TRN reports after the close this Wednesday. I will see how the guidance looks and reassess. I don't plan on purchasing more shares at current levels, but I will buy on weakness. Again, I want to mention this is a LONG term position: 5-10 years so I am not afraid to sit on a loss right now and collect my dividend.

Feb 16 07:41 PM

[User325602:]

Hey Dan-

Three different scenarios at play here;

1. What you THINK will happen

2. What you WANT to happen

3. What is ACTUALLY happening...

Looks to me what you are betting on is options 1 & 2. Your theories may at some point end up proving to be correct. TRN could again become a $25 dollar stock. The important question here though is when? If you must absolutely buy, why not wait until it hits $5 then purchase, which is where the stock is headed right now... Couple things to consider: the NYSE is completely unraveling right now. These once fertile grounds are quickly becoming a graveyard for out of favor companies. Technicals are horrible right now, with no end in sight to the downside. NOTHING in the NYSE is worth touching at the moment. Also, just because the possiblilty of a stimulus package exists, and there is also the chance that stimulus package will contain some provisions for infrastructure, which may or may not end up directly benefitting TRN, what exactly leads you to believe that these benefits will be passed on to shareholders?
TRN management has done an absolutely horrible job the last 20 years in creating shareholder value through the biggest bull market in history! Please. Why would the next 20 years be any different? Just my two cents, but you gotta come up with something more concrete than "these are the lowest levels seen since 2003...

Feb 16 11:19 PM

[smlcap:]

If you can sit on it, I think is a great buy today, it's under $10.00. I like Trinity, I just don't know that I can buy and sit on it for as long as it may take.

Feb 19 10:50 AM