John Buckingham is a leading money manager, best known for his expertise in value investing; he is a...
Trinity: Ride the Rails with Activist Support
09/16/2019 5:00 am EST
Trinity Industries (TRN) is one of the largest producers of railroad cars, with roughly 36% share of the North American new-build market; the company is also one of the largest railcar lessors, with a fleet of over 124,000 cars., explains George Putnam, editor of The Turnaround Letter.
With its roots in Trinity Steel, which incorporated in 1933, the company entered the railcar production business in the 1960s. Last November, the firm spun off most of its non-railcar operations as Arcosa (ACA).
Trinity's shares have declined sharply since their peak in 2014, down nearly 50% after adjusting for the spin-off — compared to a 46% increase in the S&P 500.
Investors worry about slowing demand for railcars from the effects of the trade war with China, falling demand for coal and metal ore cars and a potential economic recession. The market views Trinitys prospects as worrisome at best.
The market's near-term worries offer investors the opportunity to participate in this high quality company's solid long-term prospects.
Trinity's leadership is strategically redefining the company, narrowing its focus to improve its capital and operational efficiency and putting great emphasis on returning capital to shareholders.
Trinity expects to deliver 18% more cars this year than last, and management reiterated their 2019 guidance for a 70% or more improvement in earnings. Backing their optimism, they raised the quarterly dividend by 31% earlier this year, which now provides a 3.9% yield.
Helping to spur management's heightened shareholder focus is the involvement of respected activist ValueAct Capital. The fund took an initial 6.8% position in 2016 and has since raised its stake to 18%.
While cyclical risks remain, Trinity's renewed focus on profits and shareholder value should provide solid value for long term investors.
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