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FreightCar America: Steering Hard Towards The Right Direction (Rating Upgrade)

Aug. 29, 2023 2:06 AM ETFreightCar America, Inc. (RAIL)13 Comments
True Orion profile picture
True Orion


  • FreightCar America reported Q2 2023 earnings with an EPS of $0.02 and total revenues of $88.6 million, beating EPS expectations but falling short of revenue expectations.
  • The company's gross margin improved by 56% YoY in Q2 2023, signaling progress towards profitability.
  • FreightCar America is transforming into a pure play rail car manufacturer, cutting its leased car segment and focusing on increasing production efficiency.
  • The company paid down most of its debt by issuing preferred stock, but at a salty coupon.
  • Business plan shifting and financial prudency measures are two strategical policies that I believe will work out for the company, but there's still way to go.

Snow Train


Today, I'm revisiting the case of FreightCar America (NASDAQ:RAIL), a small-cap company specialized in the construction of rail cars, such as bulk commodity cars and coal cars, as well as in the conversion of existing cars for different purposes. In

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True Orion profile picture
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Comments (13)

preterist profile picture
Is the PFD publicaly traded? If so, what's the symbol?
02 Sep. 2023
The warrant holder is one of their largest shareholders. I was told 2 weeks ago by RAIL’s IR team. So, large shareholder has warrants, the other has the preferred stock. It’s in their best interest to not do major dilution and because they are keeping financing close to the chest, I think they see production growing another $100M revenues by end of 2023 and I also agree they have a 5th production line they ‘could’ look into making. I’d say give it through 2024 because YOY numbers will beat and new COO will keep operating margins in the double digits. I own 30k shares at $2.73. Plan to buy another 40-50k shares if we stay in the $2’s. I see this as growth story and or acquisition target. This is double digit stock and even with warrants it’s nearly a micro cap. Up up and away we will go!
Joelg5 profile picture
@GM77 Thank you for sharing! Any idea the exercise price and how many warrants this large shareholder controls? I have a pretty good long position myself averaging somewhere in the 2s, and earned some good money selling freight-car loads of covered calls when stock was closer to 5. I like your plan. Your eventual problem with adding a train-car load of new shares will be avoiding the NIIT on all those cap gains when stock awakens from its slumber! At one time in previous decade when RAIL stock was flying high and in double digits, pension funds owned the stock and it might have even been paying dividends (before my time). I caught stock on way down, liked it in 4-7 range, and then loaded up when it dropped into 1s. Sold a few shares ~5.
rjm22 profile picture
When I bought this stock on 8-15-19 they had a book value of $8-9 I think.
Then they pissed away all their equity and gave away huge amounts of warrants.

I lucked the heck out to be able to sell at $6.09 avg for a 52% gain. (March 2021)

Now, book value is Negative $2.73 per share per yahoo with massive amounts of penny warrants.

And often yahoo does not take into account the preferred stock with a liquidation value of $87+ million.

So that could add another $4.86 to their book value per common share making it a negative $7.59 per share.

If they were to start earning 50 cents a share it would take 15+ years to get rid of their negative book value.

Seems like a slam dunk to me.

I am torn as to if I should go all in on the stock or send care packages to their officers.
$1.19 for the CEO
$548K for the Chief Commerical Officer
$463k for the CFO
(per yahoo)
And they now have a chief operating officer with a $450k base salary.


In connection with the Credit Agreement, the Company issued to an affiliate of the Lender (the “Warrantholder”) a warrant (the “2020 Warrant”), pursuant to that certain warrant acquisition agreement, dated as of October 13, 2020, by and between the Company and the Lender, to purchase a number of shares of Common Stock equal to 23% of the outstanding Common Stock on a fully-diluted basis at the time the 2020 Warrant is exercised (after giving effect to such issuance). The 2020 Warrant was issued on November 24, 2020 and is exercisable for a term of ten (10) years from the date of the issuance of the 2020 Warrant. As of June 30, 2023 and December 31, 2022, the 2020 Warrant was exercisable for an aggregate of 8,711,224 and 6,799,139 shares, respectively, of Common Stock with a per share exercise price of $0.01.

Pursuant to the Fourth Amendment and a warrant acquisition agreement, dated as of December 30, 2021, the Company issued to the Lender a warrant (the “2021 Warrant”) to purchase a number of shares of Common Stock equal to 5% of the outstanding Common Stock on a fully-diluted basis at the time the 2021 Warrant is exercised. The 2021 Warrant has an exercise price of $0.01 and a term of ten years. As of June 30, 2023 and December 31, 2022, the 2021 Warrant was exercisable for an aggregate of 1,893,744 and 1,473,726 shares of Common Stock, respectively with a per share exercise price of $0.01.
Joelg5 profile picture
@rjm22 Congrats. You indeed made a timely exit. At Friday's $2.75 closing, I feel lucky to be holding a 13% gain, though if I added in gains from option sales it would be over a 50% gain. Neither my best nor worst stock. There is dilution ahead, but that is not fatal. Given the debt is now suddenly down to zero, the book value number will be looking much better. Which of course is a bit of a mirage or accounting slight of hand, with the debt now preferred stock paying 17.5% interest. That 17.5% rate is what AMRS is paying for debtor in possession (DIP) financing for 3 months. RAIL doing 17.5% for too many years is indeed a cause of concern.

RAIL received $85 million for the new non-convertible preferred stock ($1,000 per share), which reduced long-term debt to zero and "will be used to support further expansion of the Castaños footprint and new growth initiatives," says the Company press release (03-27-23)."As a result of the refinancing, the Company expects approximately $10 million of improvement in annual operating cash flows due to savings on its asset-based lending (ABL) facility and deferred cash dividends." The money invested in the Castaños facility should make the book value higher.

Vickers shows insiders, including CEO Jim Meyers, as buyers of the stock in May at $2.78-3.00 per share. And Pacific Investment Management Co. has been consistently adding shares. And in the 03-27-23 press release on the preferred stock, the Company claims significant financial benefits from the deferred interest scheme:

"Mike Riordan, Chief Financial Officer of FreightCar America, commented, “Given the significant progress and momentum of our business, we’ve taken an important first step in the reshaping of our capital structure through today’s transaction. This transaction significantly improves our balance sheet, lowers our interest costs and generates additional operating cash flow, allowing us to continue to invest in the business. Demand for our railcars is strong and this transaction supports the next increment of our planned growth.”"
Joelg5 profile picture
Good article. Agree with author's wait-and-see sentiment, and am holding my RAIL shares. RAIL has indeed come a long way on the path towards good financial health. With rail-car derailments and destruction almost epidemic in the USA, the need for rail-car replacements should remain strong. The move to Mexico, with its skilled rail-car labor force (workers who were laid off by rail-car competitors), is finally paying off. I believe RAIL still has one more production line ready to come online. Hence, they have room to boost production 25%.

Disagree with author about exercising of warrants and the resulting dilution being a negative for stockholders. Warrants exercising could be very bullish, and propel the stock price upwards - presuming that the money from warrants exercising is sufficient to retire the preferred stock and eliminate the cumulative 17.5% payments. In that event, RAIL would be profitable and in excellent financial shape.
rjm22 profile picture
@Joelg5 I thought the warrants had a 1 cent exercise price?
Joelg5 profile picture
@rjm22 That would be a very unusual and very strange warrant. I know they gave away a huge percentage of the company as free stock in exchange for a loan that had to be paid back.

@True Orion What's the story on the warrants: When issued? How many outstanding? How much dilution? Exercise price? Where do we find this info?
Joelg5 profile picture
@rjm22 In 2020 there was a loan contingent on a stockholder vote to give 20% of the company (via a warrant for new stock, 1 cent par value). Stockholders approved. RAIL got the loan. Lender got the stock for free (1 cent would have been an over-payment).

I assume the author, True Orlon, is referring to something else. But maybe not?

Arff arff give a dog a bone
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