Friday, July 14, 2017

New railcar acquisitions a “yes” or “maybe”: Cowen survey

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Cowen and Co. still favors Greenbrier (pictured), Trinty Rail and ARI. Cowen and Co. still favors Greenbrier (pictured), Trinty Rail and ARI. William C. Vantuono

Based on responses to Cowen and Company’s Second Quarter 2017 Rail Equipment Survey, the percentage of shippers who will or may order railcars is flat compared to 1Q2017, “but the conviction level about ordering rose meaningfully,” says analyst Matt Elkott.

“On a same-shipper basis, this percentage declined materially, but the conviction level of those planning to place orders increased significantly,” Elkott notes.

Elkott describes the survey results as “largely neutral” for new railcar demand in the next 12 months. He points to four key metrics when forecasting order activity: (1) The percentage of “all participating shippers” who will or may order railcars. (2) The conviction level about ordering (the split between “yes” and “maybe”) among this “all participating shippers” group. (3) The percentage of “same shippers” who will or may order railcars. (4) The conviction level about ordering (the split between “yes” and “maybe”) among this “same shippers” group.

“Two of these four metrics represented a quarter-over-quarter improvement, one was largely unchanged, while one deteriorated,” says Elkott.

About 45% of shippers who responded to Cowen’s survey said “yes” or “maybe” to whether they planned to place orders for new railcars in the next 12 months, largely unchanged from Cowen’s 1Q17 survey. Of those 45%, 75% said “yes,” compared to 65% in the prior survey. “As such, while the percentage of all participating shippers who will or may place orders did not change, the conviction level about ordering within this group increased meaningfully,” notes Elkott.

On a same-shipper basis, 32% said “yes” or “maybe,” down from 50% in Cowen’s 1Q17 survey. Of those 32%, 71% said “yes,” compared to 42% in the prior survey. “While the percentage of same shippers who may or will place orders declined materially, the conviction level about ordering within this group increased significantly,” says Elkott.

The percentage of responding shippers who said they will order fewer than 500 units in the next 12 months increased to 81% in 2Q17, up from 65% in the prior-quarter survey. Those indicating they will order 500-2,000 units decreased to 13%, from 29%. Those saying they will order more than 2,000 units remained unchanged at 6%. “We view the increase in the percentage of shippers planning to order fewer than 500 units as a negative,” says Elkott.

Broken down into railcar types, about 33% of respondents say they plan on ordering hoppers, up from 27% in 1Q17. Another 33% plan on ordering tank cars, largely in line with 1Q17. Roughly 17% plan on ordering gondolas, up from 9% in 1Q17, and 8% plan on ordering centerbeams, up from 5%. Elkott says Cowen regards this as “largely neutral” and as such continues to favor carbuilders The Greenbrier Cos., Trinity Rail and ARI.

2Q17 Rail Equipment Survey Cowen and Company 3

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