Barron's: Trinity Industries reaping big benefits from shale boom


Shares of railcar maker Trinity Industries (TRN +3.3%) have a long way to run, thanks to the U.S. shale boom, busy railways and stricter regulations, Dimitra DeFotis writes in a Barron's profile.

Regulators likely will require repair and replacement of old oil tank cars, and replacement is more profitable, but analysts appear too conservative in their earnings estimates for next year, says Sprott Asset Management's John Wilson, pointing to TRN's ~$5B backlog, much of it for rail tankers with strong margins.

TRN already has said it would reactivate a large tank-car manufacturing plant in Georgia in anticipation of new regulatory standards, and Sterne Agee's Sal Vitale expects that "will generate large incremental returns."

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Comments (8)
  • Hopeful17
    , contributor
    Comments (1068) | Send Message
     
    Hope you are right! I am banking on it.
    6 Jun 2014, 01:52 PM Reply Like
  • abdullah999
    , contributor
    Comments (896) | Send Message
     
    Whenever I hear the words "shares of (insert company name here) have a long way to run", I usually get quite nervous. I hope $TRN does have a long way to run, but assuming the future will be as bright as a very profitable recent past is not conservative. Good luck!
    6 Jun 2014, 02:01 PM Reply Like
  • banmate6
    , contributor
    Comments (1529) | Send Message
     
    @abdullah

     

    One can always qualify these things with some analysis. Consider TRN PE, PB, PS, and ROIC. Consider increasing demand for energy and durable goods transportation when North American energy and manufacturing are experiencing a renaissance.

     

    Suffice it to say, TRN is not expensive. And, as briefly discussed, it seems it will be supported at higher PEs, but still near the average fair PE of 15 for any company. There is some safety here.
    6 Jun 2014, 02:35 PM Reply Like
  • abdullah999
    , contributor
    Comments (896) | Send Message
     
    @banmate - I agree there is a renaissance and I wish I had seen how $TRN would increase revenues from their Rail Group ten fold since 2010 (from ~$300MM to $3B in 2013). I need to understand $TRN better but the stock reflects a 14 multiple on very impressive TTM earnings.

     

    Remember, stock prices discount all future earnings. How sure are you that we aren't approaching peak earnings? I know drilling/fracking is taking place at a frenetic pace right now...that makes me nervous. I'm not calling a recession or slowdown, just wondering if I have enough margin of safely at the current price of $83.

     

    All the best!
    6 Jun 2014, 03:25 PM Reply Like
  • banmate6
    , contributor
    Comments (1529) | Send Message
     
    @abdullah

     

    The current blended PE is 13.6, compared to a 15 year trailing average of 12. So it is about at historical fair value, strictly speaking. However, given the recent earnings ramp up, with this being forecast for some time out, it's also reasonable to at least expect support for a new PE, perhaps using 15, which is the average fair value for any stock.

     

    You are right to question sustainability. Nobody has an crystal ball. But as mentioned, TRN management is credible. The energy and manufacturing boom are real. In the last 4 years, earnings have surged to 16% average growth.

     

    On the other hand, this is a bit of a cyclical. Some analyst forecasts call for -10% growth the next 2 years. However, as I implied, I think the bullish case will prevail. Again, it's energy, manufacturing, and regulations that I believe will extend the bull cycle here.

     

    It's easier for me to wait this out, as I got in at an average of $26 in 2007. But in advising a new position? I'd say go for it if you are comfortable earning 8% - 16% for the next 2 years...with some minor risk of a downturn, of 10%.

     

    Lastly, no, I haven't put in any new money. I need to see that we're concretely in a secular bull. Then I'll chase growth here with new money.
    6 Jun 2014, 04:38 PM Reply Like
  • jcomis
    , contributor
    Comment (1) | Send Message
     
    This stock has been good for me. Been in and out of it a few times, making $$ every time.
    6 Jun 2014, 02:52 PM Reply Like
  • Joe Lunchbox
    , contributor
    Comments (702) | Send Message
     
    I think there's currently a lull in purchases while they're waiting on the new tank car regulations in the US. Once those regulations are approved and published, I look for a surge in orders for new tank cars and refurbishments of old cars. I have TRN, GBX and ARII. I think there will be enough business for everyone.
    6 Jun 2014, 04:10 PM Reply Like
  • stickman731
    , contributor
    Comments (2) | Send Message
     
    If you are looking at $TRN, what are the thoughts on the other players $GBX and $ARII. I personally think Trinity is the strongest player.
    6 Jun 2014, 11:25 PM Reply Like
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