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Bear of the Day

Freightcar America (RAIL - Snapshot Report) has been running off the rails lately in posting negative earnings surprises in two of the last three quarters. The stock is a Zacks Rank #5 (Strong Sell) and is the Bear of the Day.

Metrics Slide

The most recent earnings report saw the company post a huge decline in deliveries to 1,308 from 2,489 in the year ago period. The number was also a sequential decline from the 1,618 railcars delivered in 3Q12.

Orders were 473 units in the quarter, down 89% from the 4,481 units ordered in the year ago period.

Backlog was 2,881 at the end of the year, down 63% from teh 8,303 units at the end of 2011. The number was also a decrease from the prior quarters level of 3,716.

Company Description

FreightCar America builds and repairs railcars for the railroad industry. The company was founded in 1901 and is headquartered in Chicago, Illinois.

RAIL Negative Earnings Surprises

Over the last three quarters, RAIL has posted a negative earnings surprise in two quarters. The first miss was the June 2012 quarter, with an $0.11 miss or a 19% negative surprise. The company also missed on the top line as well.

The other miss was in the most recent quarter. The company posted a loss of $0.08 per share when the Zacks Consensus Estimate was looking for a gain of $0.26. The miss of $0.34 translates into a -130% negative surprise.

Following each miss the company saw its stock move lower. The session following the first report saw the stock retrace by 4.4%. After the second miss the stock declined a little over 7%.

Competition Investors might do well to look to a few competitors of RAIL. As a Zacks Rank #1 (Strong Buy) American Railcar (ARII) might be a safer place to be invested. Another such play that is a little more diversified would be Trinity (TRN) and is a Zacks Rank #2 (Buy).

RAIL Sees Estimates Moving Lower

Estimates for RAIL have been declining of late. The Zacks Consensus Estimate for 2013 for RAIL stood at $1.56 as of October 2012. The consensus now stands at $0.67. Similarly, estimates for 2014 have moved from $2.00 in September 2012 to their current level of $1.15.

Valuation

When we see stocks miss earnings, the valuation multiples are likely to contract. The company is showing a 13x trailing multiple of earnings, which is below the 18x industry average. The forward multiple of 30x is quite rich when compared to the 16x industry average, but is likely higher due to lower future outlook for earnings.

The Chart

The 3 month chart below shows the stock doing the Wall Street equivalent of "being discounted." The big drop in share price in February was due to the most recent earnings report. Investors can see that even at the lows reached at the day of the miss were still higher than most recent prices by about $1 per share.

Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor in charge of the Zacks Home Run Investor service, a Buy and Hold service where he recommends the stocks in the portfolio.

Brian is also the editor of Breakout GrowthTrader a trading service that focuses on small cap stocks and also carries a risk limiting strategy.

Follow Brian Bolan on twitter at @BBolan1

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