Rail Expansion: Trinity Industries

| About: Trinity Industries (TRN)

Last week The Wall Street Journal ran a piece detailing the building boom of U.S. railroads, focusing on expansion and capital spending plans of major railroads- which are investing $14 billion into rail yards, refueling stations, and track.

Taking a different approach to this investment idea, rather than directing attention to railroad stocks, such as Union Pacific, CSX or Norfolk Southern, we'll instead focus on a railcar manufacturer, Trinity Industries (NYSE:TRN). Trinity is a leading manufacturer of freight railcars and tank cars in North America, providing railcars used for transporting a wide variety of liquids, gases and dry cargo; the company also engages in a railcar leasing business.

It's no secret that new technologies have dramatically increased America's energy production and have lead to an oil and gas renaissance, emerging in the last few years. One of the bigger beneficiaries of this energy boom has been Trinity - at the end of 2011 the company had experienced a 385% increase in railcar orders backlog, year-over-year. Additionally, Trinity has a large business segment in inland barge shipping, which is also experiencing increasing demand stemming from the shale oil and gas industry.

For the full year of 2012, Trinity grew earnings at an 80% rate; and its backlog for railcars increased to $3.7 billion, while the backlog for barge orders increased to $564 million. Taking a look at a 3-month chart, you can see that the stock has been on a run, but is still fairly undervalued- trading at just 8.1 times forward earnings, with a PEG ratio under one.

TRN 1-Yr Chart

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in TRN over the next 72 hours. 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.