This article is part of our Rising Star Portfolios series.
Though investing is no place for jingoistic patriotism, I bought RailAmerica
When I first bought the stock, its superficially ugly income statement, lingering and still-large debts from Fortress's
Train kept a-rollin'
A glance at any railroad's numbers -- Union Pacific
The company delivered volume increases across product categories, as U.S. consumers' and companies' confidence returned from previous years' near-apocalyptic lows. Chemicals and metallic ores and metals showed particular strength. Alongside an acquisition-boosted 34% increase to non-freight revenue -- things like car storage, leasing real estate, and repairs -- that renewed robustness drove 17% growth in quarterly revenue.
To top it all off, the company delivered a 79.9% adjusted operating ratio (operating costs as a percentage of total revenue), as higher volumes and operational efficiencies wrung improvements from the year-ago figure of 82.6%. That greater efficiency led to a 35% increase in RailAmerica's adjusted operating profits.
With $153 million in cash on hand, management's not sitting idle. The company announced a $50 million repurchase authorization, which should pay off for shareholders given today's low share price. In the coming year, I'd also expect the company to consistently deploy excess cash flow toward debt reduction. With debt-bearing interest at 9%, and the debt burden still sizeable, that's a very good use of cash. Coupled with the company's operational efficiency mandates, which include centralizing backoffice tasks and automating payroll, this effort should push cash flow higher in years to come.
Add it up, and despite the market's fervor, RailAmerica shares still look like a very attractive value. With apologies to Gladys Knight and the Pips, RailAmerica's not a one-way train to Georgia, but a worthy vehicle for the long haul.
Canadian National Railway is a Motley Fool Stock Advisor choice. Genesee & Wyoming is a Motley Fool Hidden Gems selection. The Fool owns shares of RailAmerica. Try any of our Foolish newsletter services free for 30 days.
Michael Olsen does not own shares of RailAmerica. He does, however, always sing the "whoo-whoo" part of "Midnight Train to Georgia," complete with railroad whistle gestures. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.