Research on Railtown Capital Corp (RAIL) from Sidoti & Company
Yesterday, RAIL announced that it had removed its large tank car retrofit order from the backlog, as management no longer believes the customer will meet its obligation. The multiyear order was to upgrade 1,285 existing DOT-111 tank cars to DOT-117R tank cars; we had forecasted about 350/900 relatively higher-margin units delivered in 2H:26/1H:27. Following the removal and 662 deliveries reported for 3Q:26, the backlog at September 30 was 2,660 units, valued at $284.5 million, versus 3,972 units valued at $344 million at the end of 2Q:26. No other orders in the backlog are affected, according to RAIL. The company also reported preliminary 3Q:26 results that trailed our original expectations. We have updated our 3Q:26 estimates. RAIL lowered its 2026 guidance, with expected railcar deliveries reduced to 3,100-3,300 units (from 3,500-3,900), revenue reduced to $370-$410 million (from $410-$460 million), and adjusted EBITDA reduced to $15-$19 million (from $36-$44 million), representing midpoint declines of 14%, 10%, and 58%, respectively. Though there is meaningfully lowering earnings visibility with the removal of the tank car retrofit order, the broader railcar manufacturing backdrop continues to signal a recovery in new railcar orders, supporting a stronger 2027 operating environment. RAIL reiterated its commitment to the tank car retrofit program. We continue to see potential tank car production as a core catalyst in 2027/2028. We plan to update our model after speaking with the management. Our $13 price target applies a 17x multiple to our 2027 EPS estimate of $0.75. Our moderate risk rating balances RAIL's leaner operating footprint with key customer relationships and economic sensitivity.
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