KeyBanc Downgrades FreightCar America (RAIL) to Hold; Risk/Reward Less Favorable for New Money

September 30, 2009 7:44 AM EDT

KeyBanc downgrades FreightCar America (Nasdaq: RAIL) from Buy to Hold.

KeyBanc analyst says, "We are downgrading our rating on RAIL to HOLD as shares have surpassed our former $25 price target and we view the risk/reward to putting new money to work as less favorable. While we acknowledge that RAIL's balance sheet is sound and the Company may even remain cash flow and earnings positive through the trough of the cycle, we are downgrading our rating on RAIL based on three primary factors. First, we believe earnings will not rebound until coal car orders return, which in our view is a late 2010, or early 2011 event. We estimate coal car loadings are down 9% year-to-date, coal train speeds are up 12% over the same period and utility stockpile levels are trending at 68 days on hand (up 26% year-over-year). As such, we believe new car demand remains limited. Second, political headwinds against coal power generation are mounting and until we see some resolution on the current climate bill or a carbon tax, we believe investment in coal cars is likely to remain muted. With ~50% of domestic power generation coming from coal, we do not expect a significant mix shift toward other fuel sources in the near term."

To see more analyst ratings on RAIL Click Here.

FreightCar America, Inc. engages in manufacturing, rebuilding, repairing, selling, and leasing freight cars used for hauling coal, other bulk commodities, steel and other metals, forest products, and automobiles in North America.

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