American Railcar: Why This Manufacturer Is Killing It

| About: American Railcar (ARII)

American Railcar (NASDAQ:ARII) has been on a real roll since I profiled it in December. The company blew out earnings this week, and picked up some positive commentary as well. The company is benefiting greatly from the impressive domestic oil production growth happening throughout the country. That story is still in the early innings, as is the demand for the company's oil cars. The stock still has room to run.

Recent positives for ARII:

  • The company crushed earnings estimates Wednesday. It posted EPS of $1.14, a whopping 36 cents above consensus earnings. Revenues were also more than 10% above consensus, and posted their best mark since the third quarter of 2008.
  • Refiner PBF Energy's (NYSE:PBF) Chairman Tom O'Malley commented the other day that he "expects crude by rail to be a long-term trend lasting through the next decade, particularly the movement of Canadian heavy crude. PBF sees crude by rail as key to transforming its east coast refineries from money losers to profit makers." This bodes well for demand for American's oil cars. PBF Energy will also benefit from the low cost crude coming from the Bakken, and it is why I am positive on its stock as well. PBF was also just upgraded to "Overweight" at Simmons.
  • Forbes had a very positive piece on American Railcar prior to earnings, and correctly predicted the company would again crush earnings estimates.

American Railcar Industries designs and manufactures hopper and tank railcars in North America.

4 reasons ARII still has upside from $42 a share:

  1. The company has now beat earnings estimates five of the last six quarters. The average beat over consensus during that time period has averaged around 20%.
  2. Consensus earnings estimates for FY2013 and FY2014 had already moved up substantially over the last month. Look for significant upward revisions to these estimates in the coming week on the back of this earnings blowout.
  3. The stock is still cheap at just over 11x forward earnings, and sports a five year projected PEG of under 1 (.79). It also provides a 2.4% dividend yield.
  4. The company has a solid balance sheet with little net debt. Its backlog is now more than 7,000 rail cars.

Disclosure: I am long ARII, PBF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.