Railcar manufacturer Trinity Industries (NYSE: TRN) jumped last month after a strong earnings report. The stock still has done well since, but has yet to approach its highs of earlier this year. Investors want to know whether this industrial pick can keep rising. Let’s see if it has what it takes to fill your portfolio’s needs.
A nice rebound
Trinity manufactures railcars, barges, wind turbines, and associated industrial. While the recession hammered the company’s stock price and devastated its sales -- indeed, Trinity bears a sales growth rate of -0.9% over the last five years -- the company has rebounded since, particularly in recent quarters. Trinity currently sports a year over year quarterly revenue growth of more than 45%.
Digging into the company’s filings reveals a strong commitment to maintaining this trend. Trinity’s backlog of orders jumped more than 23% in its most recent quarter from a year ago. It now stands at more than $4 billion in future orders -- a huge chunk of which stems from the company’s core rail group, which boasts more than $3 billion in backlog. Given the cyclical nature of its industry, Trinity has a nice safety cushion to potentially fall back on should future demand take a hit.
Although you should watch for an economic downturn that would certainly lower this outlook and likely defer these orders, Trinity’s development of future revenue streams spells good things for the company if the economy continues to improve.
Competition on rails
Trinity has more than just railcar products in its diversified array of manufacturing. Still, it’s worth it to compare the company’s financial data against its railcar-producing peers to see whether or not Trinity competes successfully for your investment dollars.
|
Company |
P/E |
Operating Margin |
Long-term Debt/Equity |
Return on Equity |
|---|---|---|---|---|
| Trinity | 10.8 | 12.9% | 1.5 | 10.6% |
| American Railcar Industries (Nasdaq: ARII) | 17.8 | 11.6% | 0 | 10.8% |
| FreightCar America (Nasdaq: RAIL) | 10.7 | 4.8% | 0.92 | 10.5% |
| Greenbrier Companies (NYSE: GBX) | 7.6 | 6.2% | 1.0 | 16.2% |
Source: Yahoo! Finance and Motley Fool CAPS
Trinity is considerably larger than the others by market cap -- Trinity’s $2.2 billion cap greatly surpasses its small-cap railcar rivals, giving it flexibility in the size matters manufacturing sector. The company’s $1.3 billion total revenue from its rail division alone-- (a 144% year-over-year gain -- tops the market cap of all three competitors.
While the cheap P/E might speak, at first, of undervaluation, the industry’s cyclical nature needs to be factored in. Investors are concerned about a dip in the economy, which would hammer Trinity’s bottom line, and must factor that possibility into any view of Trinity’s future.
Overall, you shouldn’t expect Trinity to deliver insane returns, but the manufacturer offers stability for your portfolio. With domestic manufacturing averaging healthy growth since the recession, continued economic recovery will lead Trinity and its shareholders to profit.
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