Freightcar America (RAIL) has been
running off the rails lately in posting negative earnings
surprises in two of the last three quarters. The stock is a Zacks
Rank #5 (Strong Sell) and is the
Bear of the Day.
Metrics Slide
The most recent earnings report saw the company post a huge
decline in deliveries to 1,308 from 2,489 in the year ago
period. The number was also a sequential decline from the 1,618
railcars delivered in 3Q12.
Orders were 473 units in the quarter, down 89% from the 4,481
units ordered in the year ago period.
Backlog was 2,881 at the end of the year, down 63% from teh 8,303
units at the end of 2011. The number was also a decrease from
the prior quarters level of 3,716.
Company Description
FreightCar America builds and repairs railcars for the railroad
industry. The company was founded in 1901 and is headquartered in
Chicago, Illinois.
RAIL Negative Earnings Surprises
Over the last three quarters, RAIL has posted a negative earnings
surprise in two quarters. The first miss was the June 2012
quarter, with an $0.11 miss or a 19% negative surprise. The
company also missed on the top line as well.
The other miss was in the most recent quarter. The company
posted a loss of $0.08 per share when the Zacks Consensus
Estimate was looking for a gain of $0.26. The miss of $0.34
translates into a -130% negative surprise.
Following each miss the company saw its stock move lower. The
session following the first report saw the stock retrace by 4.4%.
After the second miss the stock declined a little over 7%.
Competition
Investors might do well to look to a few competitors of RAIL. As
a Zacks Rank #1 (Strong Buy) American Railcar (ARII) might be a
safer place to be invested. Another such play that is a little
more diversified would be Trinity (TRN) and is a Zacks
Rank #2 (Buy).
RAIL Sees Estimates Moving Lower
Estimates for RAIL have been declining of late. The Zacks
Consensus Estimate for 2013 for RAIL stood at $1.56 as of
October 2012. The consensus now stands at $0.67. Similarly,
estimates for 2014 have
moved from $2.00 in September 2012 to their current level of
$1.15.
Valuation
When we see stocks miss earnings, the valuation multiples are
likely to contract. The company is showing a 13x trailing
multiple of earnings, which is below the 18x industry average.
The forward multiple of 30x is quite rich when compared to the
16x industry average, but is likely higher due to lower future
outlook for earnings.
The Chart
The 3 month chart below shows the stock doing the Wall Street
equivalent of “being discounted.” The big drop in share price in
February was due to the most recent earnings report. Investors
can see that even at the lows reached at the day of the miss were
still higher than most recent prices by about $1 per share.
Brian Bolan is a Stock Strategist
for
Zacks.com. He is the Editor in charge of the Zacks Home Run Investor
service, a Buy and Hold service where he recommends the
stocks in the portfolio.
Brian is also the editor of Breakout GrowthTrader
a
trading service that focuses on small cap stocks and also carries
a risk limiting strategy.
Follow Brian Bolan on twitter at
@BBolan1
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