KeyBanc: Railcar deliveries to keep growing
Written by William C. Vantuono, Editor-in-ChiefAn analysis from KeyBanc Capital Markets released Sunday sees continued growth in railcar deliveries in 2011 and 2012, basing its estimates in part on dialogue with industry leaders.
KeyBanc’s Steve Barger and Alexander Walsh note “we expect railcar deliveries in 2011 to meet or exceed our estimate of 38,000 cars, and we are increasing our 2012 delivery estimate to 55,000 from 50,000.
“In our view, the industry is in the early-mid stages of a meaningful EPS ramp as production increases and the OEMs begin working through the healthier part of the backlog with respect to pricing. Additionally, based on our recent channel checks coupled with the ongoing strength in many of the railcar leading indicators (which include loadings, train speeds, cars in storage, utilization rates and lease rates), we think the availability of tank cars and most types of covered hoppers remains tight,” the report says.
“In our view, that dynamic is primarily being driven by increasing oil & gas production in the shale plays, which is driving incremental order activity for both low-cube covered hoppers used to transport frac sand and tank cars for crude oil.”
The KeyBanc duo adds, “We think strong bookings in 3Q11 will drive upside to the shares, supporting our belief that the pullback in the group has been driven more by macro concerns rather than actual deterioration in industry fundamentals.”
But stockholders or investors looking for a short-term fiscal killing should be cautious, KeyBanc says, due to historic trends of rapid production expansion followed by “sometimes lengthy contractions.” As a result, “we are tempering our price targets on American Railcar Industries, Inc. (ARII-NASDAQ), The Greenbrier Companies, Inc. (GBX-NYSE), Trinity Industries, Inc. (TRN-NYSE), and Westinghouse Air Brake Technologies Corporation (WAB-NYSE).”
