American Railcar Industries, Inc. (ARII), Trinity Industries Inc (TRN): A ‘Backdoor’ Way To Invest In America’s Energy Revolution

Investors in Trinity have an additional perk in the form of its dividend, while yielding a conservative 1.4%, has been increased three times since 2010, for a gain of more 60 %. With a payout ratio of about 13%, there’s plenty of room for continued growth.

In its earnings report this week, Trinity also raised its full-year earnings expectations to $4.20 to $4.40 a share, up from the range of $3.80 to $4.05 it forecast in May . Trinity’s forward price-to-earnings (P/E) ratio is less than its current P/E, which can be a powerful indicator of future earnings growth.

As higher earnings are reported, it’s a fair assumption that Trinity’s P/E should increase from 11, but not exceed its historical average of 17, which gives a price estimate of anywhere between $44 and $68 – that’s a gain of 19% to 83%. The consensus price target on the Street is $45.75 in the next 12 months, according to S&P Capital IQ.

Risks to Consider: A slowing economy or lower than expected oil production could derail Trinity’s railcar sales and keep its P/E low. Leasing operations may hurt short-term earnings as revenues from such operations are not recognized as occurring as a sale but from a monthly income stream.

Action to Take –> A solid balance sheet and thriving railcar segment with a multi-billion-dollar backlog should give Trinity the momentum to climb higher over the next 12 months.

P.S. — Warren Buffett is the ultimate buy-and-hold investor, so it makes sense that railroads would appeal to him — because railroads likely aren’t going away anytime soon, if ever. In that way, stocks like TRN are like a special group of securities we call “Forever Stocks” — stock solid enough to buy, forget about and hold “Forever.” To learn more about these stocks — including some of their names and ticker symbols — click here.

– Daniel Cross

The article A ‘Backdoor’ Way To Invest In America’s Energy Revolution originally appeared on StreetAuthority and is written by Daniel Cross.

Daniel Cross does not personally hold positions in any securities mentioned in this article. StreetAuthority LLC does not hold positions in any securities mentioned in this article.