FreightCar America (RAIL) makes railroad freight cars with an emphasis on cars that carry coal. It is a Chicago-based company that has manufacturing facilities in Illinois, Virginia, and Pennsylvania.

Sometimes a company faces a perfect storm and gets squeezed on all sides. This is what is happening to RAIL right now. Demand is slowing down due to the economy being in the pits and material costs are going through the roof at the same time. The company said it is having a tough time passing along its costs to customers. It is forced to pay surcharges on its raw materials.

Despite these headwinds, the stock is actually up a few percent year-to-date. This doesn’t make much sense to us, and we think the market is being a bit too optimistic regarding the company. There seems to be some downside to the shares at these levels. Its price/book and price/cash flow ratios are above the industry averages.

Analyst estimates have been plunging over the past two months. During that time, estimates have sunk 50 cents to $1.29 per share. Next year’s numbers have also dropped 78 cents to $2.35 per share. With raw material costs continuing to go higher, we think these estimates have to come down even more. We see this stock dropping to $30 over the next year.

Disclosure: None

• Ford: Ripe for the (Bottom) Picking?  »
• Bombardier: Earnings Preview  »
• Merger Watch: CHC Helicopter - First Reserve   »
• Magma Design Automation, Inc. F1Q09 (Qtr End 08/03/08) Earnings Call Transcript  »
• Thor Industries: Strength From Weakness  »

The Correct Call

• Bio & more articles
• Visit The Correct Call