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Bull of the Day: American Railcar Industries (ARII)

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With the economy coming back, many have become more optimistic on the transportation industry. This vital business segment is a key one for an economic recovery, and is generally a top performer in new bull cycles.

That is because when more good are being produced, there is a great demand for transportation firms to move them to ports and ship them around the globe. For this reason, transports are among the first to surge higher and often develop leadership roles when market sentiment shifts to positive, like what we are seeing now.

In this environment, it could be a good idea to look for top Ranked stocks in these types of industries, as they could be primed for great performances in the weeks and months ahead.

While looking at big railroad companies could be one way to approach the issue, another could be to look at manufacturing firms that build railcars, as these are often overlooked, but can been even better performers than their larger, lower beta counterparts.

One such firm that fits the bill in this respect is American Railcar Industries (ARII - Free Report) . This company currently has a top Zacks Rank of 1 or ‘Strong Buy’ and could be worth considering if you are seeking a high beta play that is poised to continue surging higher.

ARII in Focus

ARII is a manufacturer of covered hopper and tank railcars. The firm also repairs and refurbishes railcars, manages fleets, and designs and manufactures industrial components used in railcar production.

Manufacturing accounts for the vast majority of their revenues, although their highest margin business is probably their leasing segment. This corner of the market has really taken off as of late, as the firm has added nearly 10-fold to its railcar lineup being leased to customers, when looking year-over-year at the most recent quarterly report.  

Earnings Picture

This robust leasing operation has coupled with the improved economy to make analysts much more bullish on the company. This has led to a solid revisions picture that is decidedly skewed higher.

The Zacks Consensus for ARII earnings has moved higher for the current quarter and the current year over the past thirty days, largely thanks to more optimistic analyst expectations in the past week. This has bumped up the most accurate estimate for ARII and given the stock an Earnings ESP of 2.56%.


This suggests that the company will beat upcoming earnings and that analysts are expecting good things out of the imminent report. If history is any guide this could be the case, as the firm has crushed earnings estimates in two of the last three quarters, including a 100% beat in the March 2012 quarter.

If that wasn’t enough to convince investors, consider that the firm is not only a top Ranked stock, but it also has a Zacks Recommendation of ‘Outperform’ as well. This suggests that both the short and long term pictures are coming together nicely for ARII, making now an interesting time to take a closer look  at this small cap transportation company.

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