Pat McKeough responds to many personal questions on investing in stocks and other questions on investment and the economy from the members of his Inner Circle. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions. While we reserve our buy-hold-sell advice for Inner Circle members, these excerpts provide a great deal of information and analysis on stocks we’ve covered for members of Pat’s Inner Circle.
In the past week, we had a question from an Inner Circle member on a company that makes metal products, chiefly for transportation. Trinity Industries relies heavily on shipments of industrial products and natural resources, and Pat looks at whether it can continue to push up its revenue and profits in a sluggish economy.
Q: Can I have your recommendation on Trinity Industries Inc.? Thank you.
A: Trinity Industries Inc. (symbol TRN on New York; www.trin.net) makes a variety of metal products for many industries. Its five main segments are Rail (railcars and component parts), Construction Products (highway safety products, concrete and aggregate), Inland Barge (barges and related products), Energy Equipment (wind towers) and Railcar Leasing and Management.
In the three months ended December 31, 2012, Trinity’s revenue rose 10.8%, to $1.01 billion from $914.3 million a year earlier. Excluding one-time items, earnings per share jumped 60.7%, to $0.90 from $0.56.
Trinity holds cash of $573.0 million, or $7.24 a share. Its $3.1-billion long-term debt is a high 94% of its $3.3-billion market cap.
The company’s railcar business remains strong, with 19,360 units shipped in 2012, up 38% from 2011. The division’s backlog now stands at a record $3.7 billion, up 54% from a year earlier.
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Demand is strong for company’s railcar fleet and tank barges
Trinity’s railcar leasing fleet is now at 71,455 units, up 3.6% from 68,945 a year earlier. Demand is strong, and that’s pushing up rental rates and lease lengths.
The inland barge segment’s revenues were at record levels last year. There is strong demand for the company’s tank barges, spurred by increased shipments of chemicals and oil along the U.S. inland waterway system. That offset weaker demand for hopper barges due to lower coal shipments and last year’s poor U.S. grain harvest.
The stock trades at 11.1 times this year’s forecast earnings per share of $3.75. The shares yield 1.1%.
In the Inner Circle Q&A, Pat looks at whether shipping demand in the oil, natural gas, chemical and automotive industries will be strong enough for Trinity to continue to increase its revenue and profits. He concludes with his clear buy-hold-sell advice on the stock.
COMMENTS PLEASE—Share your investment experience and opinions with fellow TSINetwork.ca members
Stocks like Trinity Industries, with its heavy reliance on shipping, would seem to depend on a fairly strong economy to succeed. Do you think it’s best to buy and hold stocks that feed off economic activity—railways, oil drilling firms, etc.—for their long-term total gains? Or do you think it’s better to buy them when the economy is doing well and get rid of them when a downturn occurs? Let us know what you think.
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