Freightcar America (NASDAQ: RAIL) and American Railcar Industries (NASDAQ:ARII) are both small-cap transportation companies, but which is the better investment? We will compare the two companies based on the strength of their analyst recommendations, valuation, profitabiliy, dividends, earnings, institutional ownership and risk.

Risk and Volatility

Freightcar America has a beta of 1.6, suggesting that its stock price is 60% more volatile than the S&P 500. Comparatively, American Railcar Industries has a beta of 2.33, suggesting that its stock price is 133% more volatile than the S&P 500.

Profitability

This table compares Freightcar America and American Railcar Industries’ net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Freightcar America 0.06% 1.60% 1.17%
American Railcar Industries 10.46% 12.91% 4.89%

Institutional & Insider Ownership

77.3% of Freightcar America shares are owned by institutional investors. Comparatively, 95.0% of American Railcar Industries shares are owned by institutional investors. 4.1% of Freightcar America shares are owned by insiders. Comparatively, 0.0% of American Railcar Industries shares are owned by insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a stock will outperform the market over the long term.

Dividends

Freightcar America pays an annual dividend of $0.36 per share and has a dividend yield of 2.1%. American Railcar Industries pays an annual dividend of $1.60 per share and has a dividend yield of 4.3%. Freightcar America pays out 1,800.0% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. American Railcar Industries pays out 51.1% of its earnings in the form of a dividend. American Railcar Industries is clearly the better dividend stock, given its higher yield and lower payout ratio.

Analyst Recommendations

This is a breakdown of current ratings for Freightcar America and American Railcar Industries, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Freightcar America 0 3 0 0 2.00
American Railcar Industries 0 2 1 0 2.33

Freightcar America presently has a consensus target price of $15.00, indicating a potential downside of 11.19%. American Railcar Industries has a consensus target price of $41.50, indicating a potential upside of 10.31%. Given American Railcar Industries’ stronger consensus rating and higher probable upside, analysts plainly believe American Railcar Industries is more favorable than Freightcar America.

Valuation and Earnings

This table compares Freightcar America and American Railcar Industries’ revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
Freightcar America $514.68 million 0.41 $10.85 million $0.02 844.50
American Railcar Industries $577.63 million 1.24 $164.64 million $3.13 12.02

American Railcar Industries has higher revenue and earnings than Freightcar America. American Railcar Industries is trading at a lower price-to-earnings ratio than Freightcar America, indicating that it is currently the more affordable of the two stocks.

Summary

American Railcar Industries beats Freightcar America on 14 of the 16 factors compared between the two stocks.

Freightcar America Company Profile

FreightCar America, Inc. is a manufacturer of railcars and railcar components. The Company operates in the Manufacturing segment. The Company designs and manufactures a range of railcar types for transportation of bulk commodities and containerized freight products primarily in North America, including open top hoppers, covered hoppers, and gondolas along with intermodal and non-intermodal flat cars. The Company manufactures aluminum-bodied railcars, including coal cars. The Manufacturing segment includes new railcar manufacturing, used railcar sales, railcar leasing and major railcar rebuilds. The Company refurbishes and rebuilds railcars, and sells forged, cast and fabricated parts for all of the railcars. The Company also leases freight cars through its JAIX Leasing Company subsidiary. The Company’s railcar manufacturing facilities are located in Cherokee, Alabama (Shoals), Danville, Illinois and Roanoke, Virginia.

American Railcar Industries Company Profile

American Railcar Industries, Inc. is a designer and manufacturer of hopper and tank railcars. The Company designs and manufactures railcars and a range of components for the North American railcar and industrial markets. It operates through three segments: manufacturing, railcar leasing and railcar services. The Company’s Manufacturing segment consists of railcar manufacturing and railcar and industrial component manufacturing. The Railcar leasing segment consists of railcars manufactured by it and leased to third parties under operating leases. The Railcar services segment consists of railcar repair, engineering and field services. As of December 31, 2016, the Company’s operations included eight manufacturing plants that fabricate and assemble raw materials, mainly steel, into railcars, railcar components and industrial components; eight railcar repair plants; and 11 mobile repair (mobile units) and mini repair shop (mini shop) locations.

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