FreightCar America Finally Gets On Track

FreightCar America Jumps On Capacity Expansion 

We’ve been waiting for FreightCar America (NASDAQ: RAIL) to put in some solid numbers and after many quarters, systemic headwinds, COVID-related closures, and rising input costs the company has done just that. Efforts to maintain operations and plan for growth are paying off and it is clearly seen in the results. Not only that, but capacity expansions are on track to double the company’s capacity by mid-2023, just in time for what company execs predict to be a timely point in the rail industry cycle. 

“2021 was a year of many accomplishments for FreightCar America, most notably building a strong foundation for the future with the successful transition of our manufacturing footprint to Castaños, Mexico,” said Jim Meyer, President and Chief Executive Officer. “We have already begun to see the benefits of the transition … despite persistent supply chain challenges and inflationary pressures.”

FreightCar America Beats And Raises 

FreightCar had a well-deserved consensus-beating quarter in which demand not only picked up but so did production and deliveries. The company reported $75.02 million in net revenue for a gain of 23.8% over last year. The strength was driven by a significant increase in deliveries that helped the company beat the Marketbeat.com consensus by 1200 basis points. Deliveries rose to 604 cars for the quarter versus 505 in the previous quarter and 477 last year. 

Moving down to the margin, the company reported the 5th consecutive quarter of positive gross margin and the 3rd quarter of positive operating margin which was a surprise to the analysts. The operating margin came in at less than 1% but enough to drive $0.06 per share in GAAP earnings. The takeaway is that profitability is sustained and the guidance for revenue is robust. The company upped its guidance for 2022 deliveries by 1060 basis points at the low end of the range and it may be a conservative estimate. In that light, we are expecting to see earnings leverage materialize over the next four quarters and drive EPS up by high triple digits. 

“The Company is on track to double its annual railcar production capacity to between 4,000 to 5,000 railcars during 2023, which we expect to be well-timed with an increase in the railcar demand cycle. FreightCar America is now extremely well-positioned for growth, and we are anticipating solid performance, starting in the first quarter of 2022. We believe that our performance in 2022 will demonstrate the true potential for the business.”

An Opportunity In The Analysts For FreightCar America 

There have been no analysts commentaries issued on FreightCar America post-release because there are no analysis currently covering the stock. We see an opportunity in this because there have been analysts covering the stock as recently as 2020, right in the midst of the pandemic shake-up. In our view, based on the results and the outlook, the sell-side may soon take interest in the company and when that happens you can be sure prices will begin to rise. The analysts, by the way, picked up roughly 10% of the market cap over the last year and hold more than 73% of the stock. They aren’t doing that for no reason. 

The Technical Outlook: FreightCar America Pops, The Downtrend Is Over 

Price action in FreightCar America moved higher in a very definitive way, gaining more than 20% at the peak of the session and breaking firmly above any kind of technical resistance point we may have had. Price action is now testing resistance at the $5.25 level, a move above there could easily take the stock back up to the $7 to $8 range if not higher.