Summary
- Historical guidance and implied optimism from the CC made me too bullish on the stock.
- Management’s lack of further details and recent action (or lack of) on its part are bearish.
- TRN is a cyclical stock. Its current down-cycle could result in significantly lower EPS.
As a value investor, holding Trinity (NYSE:TRN) has been an expensive lesson. I leaned on historical guidance and management optimism. As I mentioned in my bullish article here, the railcar company had outperformed guidance for at least the last three years in a row. Hence, the 2016 guidance announced in Q3’15 for 27-30k cars implied TRN could sell 30k+ cars. Based on that and margins over the last few years, the Bloomberg estimate of $3.74 appeared very doable. A simple 10x PE would put the stock at $37.
Management’s comments in the previous call (Q3) sounded quite optimistic when answering Bascome Majors’ question, “what’s your strategy for managing the down slope”. The responses were:
- “Managing decreases in orders and demand, we’re really proficient at that”,
- “we are highly equipped to be able to deal with the ups and the downs”, and
- “our manufacturing flexibility of our footprint really allows us to respond to shifts in the marketplace very effectively”.
