How American Railcar Can Help You Make Money

American Railcar (ARII) has struggled this year but has made a recovery of late. The turnaround will continue according to me since FTR believes that demand for the new car deliveries is expected to be in the range of 90,560 in fiscal year 2015. FTR particularly sees tremendous demand for tank railcars and covered hopper in North America that represents approximately 41% and 35% respectively of the total expected deliveries in 2015. In fact, FTR expects this strong demand to continue in 2016 as well, with 88400 of total new car deliveries.

Strong end-market growth

Tank and hopper railcars account for nearly 83% of this strong industry backlog. Growth in non-energy sector such as plastic pallet, frac sand, grain, food service, cement and specialty as well as chemicals are driving growth for its hopper railcars. American Railcar is seeing increasing enquiries for pressure in general service tank rail cars and hopper railcars that are providing service to these commodities.

However, the energy sector remains a challenge for American Railcar. The volatility in the oil prices as well as the potential regulations related to tank railcars in the United States and Canada are hurting the demand for its railcars. Nevertheless, American has started developing tank railcar designs as per the proposed regulation during the first-quarter that should drive its sales in the near future.

A strong leasing segment

American Railcar is experiencing growth in the lease fleet. According to management, the lease fleet is expected to exceed 10,000 railcars by the end of this fiscal year. Moreover, the company expects the future railcar leveraged financing to drive additional lease fleet growth. Therefore, American Railcar is growing its lease fleet with a broad mix of customers and commodities in order to tap this growth that should enhance its financial performance. Moreover, it is producing efficient products with high quality tanks and hopper railcars to sustain high level of production at its facilities.

The company expects these efforts together with the positive trends to enhance its margin for its railcar lease segment.

Conclusion

American Railcar looks pretty strong with its core fundamentals such as revenue and earnings. Also, it is effectively utilizing its assets that are resulting in higher sales and driving its growth. So, in my opinion, it makes sense to remain invested in this stock for long-term gains.