Holding Trinity Industries Inc. (NYSE:TRN)

den-belitsky/iStock via Getty Images In late October of last year, I plugged my nose, and bought back into Trinity Industries Inc. (NYSE:TRN), and since then the shares have returned about 47% against a gain of 32% for the S&P 500. One of my more odious qualities is my tendency to brag, and so I’ll warn you now that there may be some of that in this article. For people who are justifiably repelled by such behaviour, I would stick to the “thesis statement” paragraph below. From my perspective, I get so few wins that I feel a strong need to shout loudly about the ones I do get. Anyway, the company has posted financials since, so I thought I’d review the name to see if it makes sense to add to the position, hold, or take profits and run. I’ll make this determination, as usual by reviewing the financials and by comparing to alternatives available to us. In my last article, I compared the company favourably to the 10 Year Treasury Note, and noted that the shares were trading on the cheap side of their range. In this piece I want to examine the extent to which that condition persists. My writing can be a bit tough to take for some people. For instance, I spell words correctly, and that has been known to offend some of my American readers. Additionally, the humour leaves much to be desired, and, as I pointed out above, I can be an awful braggart when presented with the opportunity. For these reasons, I fully understand why people might want a thesis statement. Such a thing gives you the chance to get into the document, get the gist of my thoughts, and then flee before it gets too much. You’re welcome. I’m neither selling nor adding to my Trinity position at this point. I think Treasuries offer a relatively more attractive return for new capital, but my cost base is so low, and dividend yield is so high, that I see no need to take profits, and trigger the capital gain. So, my advice is the following: if you followed my lead last October, hang on. If you’re just joining us, do not buy at current levels, but wait for a more attractive (i.e. cheaper) entry price. This ends the thesis statement. If you read on from here, that’s on you. Financial Snapshot The most recent financial performance has been very good in my view. Relative to the same period a year ago, revenue and net income are up by 26% and an eye watering 438% respectively. This is even more impressive a feat when you consider that last year was exceptionally good also, so the comparison is a challenging one. One thing that I did notice, and did not like, was the 11% uptick in interest expenses, which brings me along to debt. The capital structure has deteriorated somewhat, which is troublesome in my view. I’m also somewhat worried about the fact that fully $1.338 billion of debt must be paid back or rolled over in 2025. For those who want to check the debt repayment schedule, please see page 87 of the latest 10-K. The years 2025 and 2028 are particularly heavy ones for the company. None of this will disqualify the company from consideration in my view, but for me to get excited about buying more, the shares will need to be cheap. Trinity Financials (Trinity investor relations) Valuation I’ve written it before, and I’ll likely write it again. In the domain of investing, everything is relative. When we buy “x”, we by definition eschew any number of “y”, so the “x” that we choose had better have the best combination of risk and potential reward in my view. Given that I like to try to measure the risk of everything, I want to compare it to the risk free rate. After all, it makes no sense to own a relatively stock when it offers less return than the much less risky 10 Year Treasury Note. In my previous note on this name, I offered the stock a back handed compliment: the premium over the risk free rate wasn’t offering a king’s ransom, but at least it was positive. That is rare at the moment, so I was impressed. The dividend has grown at a heroic CAGR of about 8.9% over the past decade, and I don’t think that’s sustainable frankly. For my analysis, I’m going to assume that the company manages to grow dividends over the next decade at a CAGR of about 3%. In that circumstance, the holder of the stock and the Treasury Note receive virtually identical cash flows, per the following: Trinity v The Treasury Note (author calculations) So far, I’m not impressed, given that cash flows of Treasury Notes are virtually identical to cash flows that an investor might get under a slightly optimistic growth forecast. Given that I won’t be adding any more capital at this time. At the same time, my dividend yield is currently about 5.2%, so I have no interest in selling either. So, my recommendation would be for those people who followed me back in late October, hang on to the shares, and for those who are just joining the party, I would recommend waiting for a more attractive (i.e. cheaper) entry price.

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