Purchased some Trinity today. Like the sector, and Trinity a bigger player and strong in the tank car side. Question is do any of these companies have the ability to make any more cars than they are making? Great to have back log, but how do you grow revenues if they have maxed out production.
By the time a railcar manufacturer can ramp up production there'll be a pipeline to transport the oil. The only ways to increase output is build another plant or buy out your competition. Icahn tried that and fell flat on his face. Like a spoiled brat that doesn't get his way he dumped all his GRX stock. I've been studying the railcar sector (TRN GBX ARII) and I find, based on 11 metrics that TRN is the last Co I would buy right NOW.
TRN wins on only 2 metrics MKT CAP and EPS.
ARII wins on 4, SHARES OUTSTANDING (fewest), DIV, YIELD, UPSIDE POTENTIAL VS DOWNSIDE RISK
GBX wins on 5, PPS, PE, AVE VOL, BETA,
TRN has UPSIDE POTENTIAL = $0.84 VS DOWNSIDE RISK = $15.32 based of the 52 wk High/Low
But what do I know?
ARII has an agreement with another Icahn owned company, ACF Industries, LLC whereby ARII has ACF manufacture tank cars for it since ARII is running at capacity. The cars being built are not counted in backlog. In my opinion, that will juice Q4 earnings substantially. From the 10Q:
"In January 2013, ARI entered into a purchasing and engineering services agreement and license with ACF...Under this agreement, ARI will provide purchasing support and engineering services to ACF in connection with ACF’s manufacture and sale of certain tank railcars at its facility in Milton, Pennsylvania. Additionally, ARI has granted ACF a non-exclusive, non-assignable license to certain of ARI’s intellectual property, including certain designs, specifications, processes and manufacturing know-how required to manufacture and sell such tank railcars during the term of the agreement. Subject to certain early termination events, the agreement shall terminate on December 31, 2014.
In consideration of the services and license provided by ARI to ACF in conjunction with the agreement, ACF shall pay ARI a royalty and, if any, a share of the net profits (Profits) earned on each railcar manufactured and sold by ACF under the agreement, in an aggregate amount equal to 30 percent of such Profits, as calculated under the agreement. Profits are net of certain of ACF’s start-up and shutdown expenses and certain maintenance capital. If no Profits are realized on a railcar manufactured and sold by ACF pursuant to the agreement, ARI will still be entitled to the royalty for such railcar and will not share in any losses incurred by ACF in connection therewith."
In the end,I came to same conclusion as you. However, one point in TRN favor is they are a little more diversified than ARII. Also, looking at gross margins, GBX does not appear to be very well managed, yet their execs make substantially more comp than ARII.
thanks for the info. Friend of mine traveling by train thru ND last week emailed about seeing miles and miles of tank cars sitting on the sidings. Lot of companies making them as fast as they can - but as you point out, it won't be forever.