Monday, June 30, 2014

Analyst: Thumbs up to Trinity Industries buy

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Trinity Industries, Inc. has announced its intent to acquire Meyer Steel Structures, a provider of tubular steel structure for electricity transmission and generation, for about $600 million.

Dallas-based Trinity Industries said Friday, June 27, 2014 it expects to finance the purchase with "cash on hand." The transaction is subject to customary regulatory approvals and is expected to close during the third quarter.

Meyer currently is the utility steel structures division of Thomas & Betts Corp., a member of the ABB Group. From its Memphis, Tenn., headquarters, Meyer directs manufacturing facilities in Alabama, South Carolina, Texas, and Wisconsin. On a stand-alone basis, Meyer is expected to record full-year 2014 revenue of approximately $325 million, Trinity said.

Trinity will report revenue and earnings from Meyer upon completion of the transaction, and its operating results will be included in Trinity's Energy Equipment Group.

In a note to clients Sunday, June 29, 2014, Keybanc Capital Markets Inc. analyst Steve Barger described the acquisition as "a solid strategic move."

Said Barger, "We think Meyer is a high-quality asset in a growing industry, which should further align TRN with what we expect will be a substantial energy infrastructure build-out in North America. Additionally, given TRN's existing exposure to various energy-oriented end markets, we think it should be able to leverage its new product line into new and existing customer relationships and demand trends."

Barger said Keybanc believes "that TRN is efficiently deploying capital to pursue its goal of becoming a diversified industrial company, and that its strong earnings and cash flow should support additional future acquisitions, dividend increases, its share buyback program and other value-creating opportunities."

He added, "Given that this business is moderately cyclical in comparison to TRN's rail business, we are encouraged by the idea of more stable cash flows from Meyer. Additionally, we suspect that steel costs associated with Meyer could be handled similarly to TRN's other businesses through supplier commitments and contractual price escalation provisions."

The company reiterated its "buy" rating for Trinity Industries.