2023-08-16 15:20:32 ET
Summary
- Trinity Industries, Inc. is a railroad-focused company that operates and leases railcars, manufactures freight and tank railcars, and provides maintenance services.
- The company's second quarter results showed a surge in revenues, but earnings per share fell below expectations.
- Analysts have mixed ratings on the stock, with one reiterating a Hold rating and another reissuing a Buy rating. The CEO and a director made insider purchases earlier this year.
- The stock also pays a better than four percent dividend. What's ahead for Trinity Industries? An analysis follows below.
Time goes faster the more hollow it is. Lives with no meaning go straight past you, like trains that don’t stop at your station .”? Carlos Ruiz Zafón.
Today, we take a look at an industrial name that had some insider buying late in the first quarter of this year. The stock has had a nice run since its recent lows in early May and yields four percent to boot. Are there still legs to this rally? An analysis follows below.
Company Overview:
Trinity Industries, Inc. ( TRN ) is headquartered in Dallas, TX. This railroad-focused concern operates in two segments. The company operates and leases nearly 110,000 various types of railcars. Trinity also manufactures freight and tank railcars and provides maintenance and repair services. Just over two thirds of overall revenues comes from the manufacturing side of the business. The stock trades just over $25.00 a share and sports an approximate market capitalization of $2.1 billion.
Second Quarter Results:
The company posted its second quarter numbers on August 1st. Revenues surged just over 77% on a year-over-year basis to $722 million, more than 10% higher than expectations. GAAP earnings per share of 23 cents fell eight cents under the consensus, however.
The company delivered 4,985 of various types of rail cars to customers during the quarter while receiving new orders for 4,770 new rail cars. Order backlog stood at $3.6 billion at the end of the quarter. The company projects that it will deliver 45,000 rail cars in FY2023 and deliver earnings of between $1.35 and $1.45 a share.
Analyst Commentary & Balance Sheet:
Since second quarter results were posted, Susquehanna has reiterated its Hold rating and $29 price target on TRN while TD Cowen reissued their Buy rating and $34 price target on the stock.
The CEO bought just under $200,000 worth of shares in March of this year and a director added $65,000 to his stake during that month as well. That is the only insider activity in the shares so far in 2023. Less than two percent of the outstanding float in the shares is currently held short. The company ended the second quarter with just over $90 million in cash and marketable securities on its balance sheet .
Long-term debt was just under $800 million. The company recently rolled over some of that debt with a $400 million senior note offering . Total committed liquidity at the end of the first half of 2023 was $699 million. Adjusted free cash flow during the second quarter was $45 million.
Verdict:
Trinity industries made 94 cents a share in FY2022 on $1.98 billion in revenues. The current analyst firm consensus has sales rising just over 40% in FY2023 and the company making $1.35 a share in profits. They project revenues to fall some four percent in FY2024 even as profits surge to just under two bucks a share.
It is hard to get too excited by an industrial/manufacturing concern trading at 27 times trailing earnings and 19 times forward earnings, albeit the company does pay a just over a four percent dividend yield and appears well-managed. Competitor The Greenbrier Companies, Inc. ( GBX ) trades for 32 trailing earnings but under 15 times forward earnings in way of comparison.
I would give Trinity Industries, Inc. more consideration given the huge surge of revenues it is experiencing this year if the economy was about to enter a period of accelerating economic growth. It should be noted some of that sales growth is being provided by a couple of smaller acquisitions made earlier this year ( I , II ).
However, after better than two percent GDP growth in the first half of 2023, I think that is as good as it gets. In fact, I think the country will be in recession by the first half of 2024 which I recently articulated again in this article . Therefore, the recommendation is to avoid Trinity Industries, Inc. shares at these levels.
The only way of catching a train I have ever discovered is to miss the train before .”? G.K. Chesterton.
For further details see:
Trinity Industries Q2 Earnings: Rolling Along