Stifel Upgrades FreightCar America To Buy, $29 Price Target

In a report published Tuesday, Stifel analyst Michael J. Baudendistel upgraded the rating on

from Hold to Buy, with a price target of $29. The analyst believes that the stock valuation could rise significantly if FreightCar America's railcar diversification strategy is implemented even "half right." The analyst expects this valuation upside even if there is continued weakness in new coal railcar demand, with just visible progress toward the diversification strategy rather than full realization. "We view execution of the company's diversification strategy into other railcar types and the potential for additional near-term earnings misses (particularly in the 2Q15, a quarter that should continue to be impaired by start-up costs at the Shoals facility) as being the largest risks to our upgrade," Baudendistel stated. On the other hand, the analyst believes that the stock's multiple could remain depressed due to FreightAmerica's historical position as the primary coal car builder, with some investors continuing to associate the company with "one-for-one with demand for new coal car demand." Demand is expected to remain muted due to declines in coal volumes in 2015, with the domestic coal market facing regulatory challenges, low natural gas prices and challenges to exporting coal due to the impact of a stronger dollar.