Ear to the Ground for This Rail Name

As we roll into earnings season, I find it's always insightful to listen across the food chain for insight into companies that we like, own or want to own. Many a time I have picked up investing nuggets by reading a Securities and Exchange Commission filing on a supplier or competitor to a company on which I'm positive. The only thing better than that is actually talking to the supplier or competitor, then using what's been learned to further the conversation with the company on which I'm doing my homework. For the last several quarters, as frequent readers here have probably recognized, I have been bullish on the shares of Trinity Industries (TRN), given rebounding demand and firming industry pricing for freight cars. All in all, shares of Trinity are up 65%, including dividends, since I first recommended the shares in September 2010 -- when industry freight car backlog had bottomed and orders had started to rebound. In my view, as long as industry fundamentals remain favorable, Trinity shares have upside potential to $45. As those who have invested in cyclicals know, the best time to buy these types of companies is when the fundamentals look less than favorable and the stocks look expensive on a price-to-earnings basis, largely because earnings are depressed. On the flip side, the time to exit these types of companies is when they start to look cheap on a P/E basis and when demand begins to wane. In the case of Trinity and the other domestic freight car manufacturers -- Greenbrier Cos. (GBX), American Railcar (ARII) and FreightCar America (RAIL) -- this would mean the softening of orders as production continues to climb and backlog levels stall or begin to fall. In keeping tabs on how the industry is keeping pace, it's important to listen to industry and competitive commentary from key customers and suppliers such as CSX (CSX), Union Pacific (UNP) and Norfolk Southern (NSC), as well as lease fleet operator GATX (GMT) and Westinghouse Air Brake (WAB). The rail companies, as well as GATX, will describe end demand that impacts capacity utilization, as well as update capital spending plans. Both of these help determine new freight car demand. Westinghouse Air Brake tends to offer a different take on industry demand metrics, which in my view tend to help corroborate the story. Another key is paying attention to what the competitors say -- when they report their quarterly earnings, dish on their earnings conference calls and say in the management discussion and analysis of the financial filings. It offers insight into pricing trends, market share gains and much, much more. First-quarter earnings are just ahead, and freight car loadings are down modestly year to date, even though intermodal volume is up 3.6% on the same basis, according to American Association of Railroads data. The first fresh take on new freight car demand will come next week, when Greenbrier is set to announce its February 2012 quarter-end results on the morning of April 9. Needless to say, I will be looking through the headline results not only in order to delineate between Greenbrier's freight car and marine barge businesses, but also to better understand near-term demand for new freight cars. I'll also be discerning the implication for industry backlog levels, industry pricing dynamics and other factors that will offer help read the tea leaves and discern the implications for Trinity shares. According to Thomson Reuters, the Street expects Greenbriar to deliver earnings of $0.47 per share on revenue of $440 million for its February quarter. With calendar expectations rising to $2.29 in EPS on sales of $1.9 billion for all of 2012, it seems few expect any slowdown in new freight car demand in the near term. _________ Editor's Links More on transports: A Stock That's Going Off the Rails Another Chance to Rev the Jet Engine Stocks for the Oil-Airline Dynamic

Ear to the Ground for This Rail Name

In divining where Trinity shares may be headed, I'll be looking closely at the upcoming Greenbriar report.

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