RailAmerica (RA) May Draw 30% Premium in Takeover Bid
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Though RailAmerica, Inc. (NYSE: RA) announced last week it was considering strategic alternatives, there still might be more upside in store for investors.
Data compiled by Bloomberg points to about 30 percent upside, to be precise. In addition to parent Fortress Investment Group (NYSE: FIG) trimming expenses enough to double earnings, the company is still undervalued relative to peer Genesee & Wyoming (NYSE: GWR). Each carload is nearing a record high revenue draw as well as free cash flow generation.
RailAmerica runs 44 short-line and regional railroads covering 7,400 miles in the U.S. and Canada. The routes allow RailAmerica to transfer goods from customers such as miners and farms to long-haul section of rail.
It wasn't elaborated as to which company might be interested in buying RailAmerica, which boasts a market cap of $1.2 billion -- about double what Fortress paid to take the company private back in 2007. One big investor could be Warren Buffett. His Berkshire Hathaway (NYSE: BRK-A)(NYSE: BRK-B) took over Burlington Northern in 2010, citing greater demand for rail transportation in the future.
Using EBITDA multiples, analysts are looking for RailAmerica to draw anywhere from $24 to $31 in a takeover bid.
On the other hand, bidders might be sparse as Fortress did a good job of trimming costs and RailAmerica's short lines wouldn't be desirable to many long-haul operators.
Still cash flow and plenty of work ahead might mean Fortress is in no rush to unload its 60 percent stake.
Shares are up about 1.6 percent on the session.
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Data compiled by Bloomberg points to about 30 percent upside, to be precise. In addition to parent Fortress Investment Group (NYSE: FIG) trimming expenses enough to double earnings, the company is still undervalued relative to peer Genesee & Wyoming (NYSE: GWR). Each carload is nearing a record high revenue draw as well as free cash flow generation.
RailAmerica runs 44 short-line and regional railroads covering 7,400 miles in the U.S. and Canada. The routes allow RailAmerica to transfer goods from customers such as miners and farms to long-haul section of rail.
It wasn't elaborated as to which company might be interested in buying RailAmerica, which boasts a market cap of $1.2 billion -- about double what Fortress paid to take the company private back in 2007. One big investor could be Warren Buffett. His Berkshire Hathaway (NYSE: BRK-A)(NYSE: BRK-B) took over Burlington Northern in 2010, citing greater demand for rail transportation in the future.
Using EBITDA multiples, analysts are looking for RailAmerica to draw anywhere from $24 to $31 in a takeover bid.
On the other hand, bidders might be sparse as Fortress did a good job of trimming costs and RailAmerica's short lines wouldn't be desirable to many long-haul operators.
Still cash flow and plenty of work ahead might mean Fortress is in no rush to unload its 60 percent stake.
Shares are up about 1.6 percent on the session.
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