Bull of the Day: American Railcar (ARII) - Bull of the Day
American Railcar Industries, Inc. (ARII) is cashing in on strong railcar demand as well as changes to government regulation. This Zacks Rank #1 (Strong Buy) recently reported record quarterly revenues and earnings per share.
American Railcar makes hopper and tank railcars for the railroad industry. It also leases railcars and provides railcar repair and refurbishment through various repair facilities in the United States.
Huge Beat in the First Quarter
On Apr 29, American Railcar reported first quarter results and blew away the Zacks Consensus by 33%. Earnings were $1.64 compared to the Zacks Consensus of $1.23.
This was a new first quarter record high for earnings, which jumped 69% compared to a year ago.
Revenue soared 45% to $263.8 million from $182.1 million due to an increase in manufacturing revenues from a higher mix of direct sale shipments relative to railcars shipped for the company's lease fleet.
The number of railcars shipped rose 66% to a quarterly record of 2,668 from 1,610 a year ago as hopper railcar shipments increased "significantly" as that market strengthened.
The backlog as of Mar 31 was 10,471 railcars, with an estimated value of $1.1 billion. The percentage of hoppers, versus tank cars, has been increasing as tank car orders have softened.
New Tank Car Regulations in Play
On May 1, the Department of Transportation finally announced long-awaited new regulations on tank cars carrying crude and chemicals.
The government gave owners 3 years in which to deploy either new crude tank cars or retrofit old cars to be in compliance with the new, more stringent tank car and brake regulations.
Railcar owners will have 5 years in which to become compliant with cars carrying non-crude products.
The full impact on the railcar manufacturing and repair industry is not yet known but obviously there will be additional tank cars ordered and repairs needed.
Some customers were already ordering newly upgraded cars in anticipation of the new regulations. But how many new orders are there still to come in?
2015 Estimates Rise
With a big first quarter beat and now new tank car regulations, the analysts have been busy trying to make sense of it all.
4 estimates have been raised for 2015 in the last 30 days pushing the Zacks Consensus Estimate up to $5.46 from $4.91 per share in that time.
That is earnings growth of 15.6%.
Shares Are Cheap
American Railcar is one of those rare stocks that is not only a Zacks Rank #1 (Strong Buy) but it has Zacks Style Scores of "A" across all other metrics of Growth, Value and Momentum.
It's not a surprise it is an A in value. Shares are cheap.
It trades with a forward P/E of just 10.3, which is well under the average of the S&P 500 which is 18.2.
American Railcar also has a price-to-book ratio of 2.3. A P/B ratio under 3.0 usually indicates value.
Shares weakened in late 2014 as crude plunged on fears that there would be less crude shipped by the rails which has created a buying opportunity.
For investors looking for a way to play the growth in the rails without buying the railroads, American Railcar is one to keep on the shortlist.
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Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Insider Trader and Value Investor services. You can follow her on twitter at @TraceyRyniec.
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