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Strategies & Market Trends : Value Investing

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Spekulatius

To: E_K_S who wrote (57905)	9/4/2016 8:00:05 PM
From: Technamentals	1 Recommendation Read Replies (3) of 78817

FreightCar America, Inc. (RAIL) Have you guys run any models on RAIL yet? Seems very tricky to forecast anything with this company as revenues/costs are very lumpy. That being said, the company appears to be a good "net-net" candidate (not exactly but close). Applying a 25% discount to inventory and stripping out any long-term assets gives an intrinsic value of ~$10. Applying a 30% discount to all assets (including long-term) and stripping out goodwill along with deferred income taxes gives us ~$11/share. So that puts us almost squarely at a 20% downside risk on this company, backstopped by assets. I think this is a very conservative estimate as well. The multiples on this company are mind boggling low (I'm sure they'll grow as business deteriorates as projected though) RAIL's strategy of diversification away from coal will begin paying off in EY '16 and into '17. CAPEX has been larger than usual with the Schoals factory going online. If the company's strategy begins to payoff going forward it seems that the upside could be towards $16-$18 a share. Risk/reward at this juncture seems to be tilted towards reward. I ran a quick DCF model if you guys want to take a look. 2015-2020e (#'s in millions) EBITDA CAGR: (2.2%), 2020 EBITDA = $50.8 D/A CAGR: 0% EBIT CAGR: (2.7%) CAPEX=D/A in terminal year. $12.10 for both. Working capital increase of $10 every year. Free cash flow at 2020e is $18.56 Terminal EBITDA Multiple of 3.5x Price target: $15.43 I think the EBITDA is a conservative one. In an upside case that is still conservative (correct me if I'm wrong there) by 2020 the company is back above 2015 EBITDA at $63.50 (CAGR of 2.2%) I think the upside is even greater. Price target: $18.27 same assumptions as above besides EBITDA RAIL may be a good takeover candidate as well for some of the larger players in the industry and would command a price reflective of a strong balance sheet and potential business improvement, say ~$20 a share (mainly speculation there). In addition, RAIL is currently in a period of consolidation and appears ready to move in the coming months. i think now would be a good time to buy. I would plan on cutting my losses if it breaks to new lows at around $13 a share. I'm here to learn* so please critique and inform me as much as possible.

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