The increasing demand for transportation by railroad is once again becoming a hot area in the United States. This will lead to increased investment in stocks associated with railroads. Companies are utilizing railroads to ship grain, potash, and oil as commodities hit record high prices. With maturing fleets of cars, many companies will be investing in new railcars. One company that could benefit from these trends is American Railcar Industries (ARII).
With a market capitalization of $860 million, American Railcar is one of the largest railcar manufacturers. On Wednesday, the company reported record quarterly and full-year earnings. Shares were unchanged on the earnings, representing a great buying opportunity in the latter half of the trading week.
American Railcar reported revenue of $207.7 million in the fourth quarter. This marked the highest quarterly revenue since the third quarter of 2008. Earnings per share were $1.14, which was a quarterly record for the company. Adjusted EBITDA of $48.0 million was also a quarterly record. American Railcar shipped 2,000 railcars in the quarter. American Railcar shattered analysts' projected earnings per share of $0.78. Revenue also beat the $185.7 million predicted by analysts on Yahoo Finance.
Fiscal-year revenue totaled $711.7 million, beating the $519.4 million posted a year ago. Full-year earnings were $2.99, and a total of 7,800 railcars were shipped by the company. Analysts on Yahoo Finance expected full-year earnings to be $2.69. Full-year revenue was expected to it $691.5 million. In the fourth quarter, the company received orders for 1,430 railcars. This brought the total backlog up to 7,060 railcars. Of the ordered railcars, 5,250 are to be manufactured and 1,810 will be leased. The value of the two segments is $662.8 million and $227.0 million, respectively, making a total backlog of $889.0.
Competitors for American Railcar include Trinity (TRN), Greenbrier (GBX) and Freight Car America (RAIL). American Railcar is actually in a fierce battle with Greenbrier to acquire the smaller railcar developer. Famed investor Carl Icahn owns 56% of American Railcar shares. He has attempted to purchase Greenbrier now on two separate occasions. In December, Icahn and American Railcar offered $20 a share for Greenbrier, which Icahn also owns a 10% stake in. If American Railcar wins a bid for Greenbrier, it would create cost savings and also make one of the most dominant players in the railcar industry. The companies own a joint venture in Ohio Castings, a company that makes railcar parts. There would be immediate cost savings and an increased backlog from a combined company.
American Railcar sees the majority of its revenue from two types of railcars (Hopper, Tank). Here is a list of railcars manufactured by the company:
- Hopper (pellet, grain, cement, potash)
- Tank (chemicals, propane, ethanol, asphalt, crude oil)
- Intermodal Well
- Iron Ore
- Mill Gondola
- Center Beam
- Specialty Railcar
A positive growth measure for American Railcar is coming in the form of international joint ventures. Recently, the company entered into a deal to form Amtek Railcar. American Railcar owns 50% of the Indian operation. The facility is nearing completion and will begin producing railcars soon. American Railcar is hoping this becomes a mature production. New areas of expansion for the company include the possibility of Russia and Saudi Arabia. The company is focusing on expanding its international revenue, and India is the start of it.
In fiscal 2013, analysts now expect the company to post earnings per share of $3.37. Revenue is expected to grow to $772.4 million. However, after the double beat on Wednesday I'm sure these numbers will climb higher. I'm also waiting to see if American Railcar issues guidance for fiscal 2013.
American Railcar shares trade at $40.27, near a 52-week high ($42.79). I was surprised to see shares unchanged in the after-hours trading session and down on the day. American Railcar is trading at a higher price-to-earnings ratio than its rivals, but clearly deserves it with its better growth prospects. I am bullish on the entire railcar industry and think American Railcar is the best stock in the sector.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.