Dahlman Rose Gives Color On RailAmerica Following Earnings

RailAmerica RA reported 4Q10 EPS of $0.33. However, when adjusting for nonrecurring and non-cash items as well as a lower-than-expected tax rate EPS from continuing operations came in at around $0.13, handily beating Dahlman's and consensus estimates of $0.08 and $0.11, respectively. The adjustments include a $17.6 MM retroactive 45G tax credit, a $0.5 MM net gain on asset sales, and a $4.3 MM charge related to amortization of swap termination. RailAmerica achieved the strong earnings results in part due to its ability to limit the increase in operating expenses in the face of improving traffic. This resulted in an adjusted operating income of $25.7 MM, which was above Dahlman's and consensus estimates of $22.8 MM and $23.8 MM, respectively. The operating ratio before the aforementioned items improved 270 bps to 79.9% from the 82.6% reported in 4Q09. Dahlman Rose raises its earnings estimates to reflect the 45G tax credits, strong earnings results, favorable outlook, and newly announced share repurchase plan. The new 2011 and 2012 EPS estimates are $0.85 and $1.00 vs prior estimates of $0.60 and $0.80, respectively. Dahlman notes that its prior estimates did not reflect the 45G tax credits. Dahlman maintains its Hold rating as we monitor the operational progress, and it notes that we would not be opposed to re-examining our opinion if shares were to pull back. Dahlman Rose has a Hold rating on RA RA is trading higher at $14.66