Bear of the Day: Trinity Industries (TRN)

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Trinity Industries, Inc. (TRN) recently spun off its infrastructure business. This Zacks Rank #5 (Strong Sell) is navigating life as a stand alone railcar company heading into 2019.

Trinity Industries operates in the rail transportation business. It manufactures railcars, operates maintenance and modification businesses and also has a railcar leasing and management business.

It also has maintained ownership of its highway products and logistics businesses.

It Spun Off Its Infrastructure Business in 2018

On Nov 1, 2018, Trinity completed its spin-off of Arcosa (ACA), the company's infrastructure business which includes barges, storage tanks, wind towers, construction site support and road materials.

Trinity shareholders got stock in Arcosa.

Accelerated Share Buyback Impacts Earnings

On Nov 16, the company announced it would accelerate its repurchase program with a $350 million purchase bringing the total repurchase to $500 million.

On the same day, Trinity also updated its full year 2019 earnings per share guidance to a range of $1.15 to $1.35 from prior guidance of $0.90 to $1.10.

The ASR is expected to benefit 2019 earnings per share by $0.13, based on the closing stock price as of Nov 15, 2018.

Additionally, it also received new railcar orders which changed the company's guidance calculation as well.

As of the third quarter earnings and guidance update on Oct 24, 2018, Trinity had received orders for 7,725 railcars in the third quarter, up from 3,045 railcar orders in the third quarter of 2017.

The backlog had risen during the third quarter to 28,315 railcars, representing $3.2 billion from 24,580 railcars with a $2.7 billion valuation as of the end of the second quarter.

CFO to Leave

On Dec 17, Trinity announced its CFO would leave the company as of December 31, 2018. He had joined Trinity in 2016.

The company announced Melendy Lovett, the current SVP and Chief Administrative Officer, with oversight of the railcar leasing business, would become CFO.

Estimates Adjusted

The analysts have adjusted for the spin-off and the updated guidance.

The 2019 Zacks Consensus Estimate is looking for $1.33, which is at the high end of the company's guidance range.

While the Zacks Rank is a Strong Sell, the estimates were cut due to the spin-off. In this case, investors should be cautious on the Rank.

Future earnings reports as a stand alone company are now key and will give a better indicator of the earnings picture.

Shares are Down on the Year

With the stock market struggling, it's not surprising that the shares are down.

The big plunge in the 1-year chart is the spin-off.

However, they've fallen 9.5% in the last month, and this was after the spin-off had been completed.

Arcosa isn't faring any better. Those shares are down 20.6% year-to-date now.

If you want to invest in the railcar industry, you might want to take a look at competitor Greenbrier (GBX) instead. It's shares are also down 27% year-to-date, but it now sports a forward P/E of just 9.2. It's also a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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