FREIGHTCAR AMERICA (RAIL) - STILL ON TRACK
Brought to you by Drew Millegan & The Woodworth Contrarian Fund
Q2 2026 earnings are out for Freightcar America, and the company continues to flex its newfound efficiencies following several years of transition to plant production in Mexico. Cashflows are up, market share continues to increase despite slowing industry orders, and efficiencies in both production and finances continue to build.
For a company which, just a few years ago, was building and shipping approximately zero railcars as they spun up their Mexican production plant, the growth into an industry-dominant company capturing 45% of all industry new railcar orders is quite impressive. As the company has been clearing out the cobwebs and ramping up production, Freightcar has also been making moves to diversify its income streams. On July 21, 2026, RAIL made an announcement that they completed the acquisition of Southern Parts & Equipment, a Georgia-based distributor of new, used, and reconditioned railcar components. Notably, this acquisition was after the reporting period (ending June 30th), so this transaction won’t be fully broken out in financial reporting until RAIL’s Q3 earnings (around October). RAIL has stated that the acquisition is immediately accretive, so this stands to complement and enhance the company’s existing line of business in aftermarket railcar parts and refurbishment.
Taking a look at their actual operations, it’s clear that RAIL continues to go from strength to strength - order backlog value increased 121% sequentially, and free cash flow was up to $11.35 million as compared to just $7.92 million a year ago, making it clear that long-term investments in operational efficiency have been paying dividends. Currently, management notes that railroad companies are ordering fewer cars than are being scrapped, indicating that managers may be trying to stretch out the useful life of their existing fleets a bit longer in the face of tariff costs and uncertain international economic conditions. Being one of the more reliable and low-cost producers in the market, however, there is an expectation of a forthcoming uptick in new orders as railcars reach the end of their useful life despite attempts to extend them. In the meantime, RAIL can continue to expand their offerings of parts and refurbishments, among other growing segments. It’s notable that the company has the ability to expand through acquisition now that its finances have stabilized, and could be a harbinger of greater growth and diversification to come.
One last item that may be being overlooked the most by investors on the street, however, is RAIL’s balance sheet. The company had to take on creative debt and some new investors to make the multi-year shift from their old US operations to Mexico (taking a lot of guff from both investors and US-based unions in the meantime), which has now completed its intended purpose. As a result, the company has not only shifted previously shorter term and higher interest debt into more conventional long-term loans, but 105.4 million of the previously 119.4 million warrants outstanding that were issued as a kicker to previous financiers have finally been exercised. Warrants, for those unaware, are effectively an option to buy stock at a predetermined price that usually expires after a predetermined period. For RAIL, this meant that every quarter these unissued shares sat unexercised, they were forced to mark the value of these warrants to market, wreaking havoc on their bottom-line earnings reports despite being immaterial to their actual operations. With just 14 million warrants left on the books, Q2 is set to be the last quarter that their stock price fluctuations will be obscuring underlying fundamentals, which in turn should make valuation of the company much more straightforward and reduce volatility in their reporting.
It is never a sure thing that a company will continue to perform well into the future, but given that RAIL now controls such a sizable chunk of the railcar orderbook (and growing), we see no reason why this company will become harder and harder for the market to ignore at current prices (just under $8 per share as of writing). Under our own internal model, we continue to rate RAIL as a buy, with a short-term target somewhere at least in the $12 range. In the long range, RAIL has the potential to grow to be a much larger company and, having already been added to some of the smaller indexes such as the Russel 2000, has the potential to grow much larger. We look forward to continuing to follow the company as they grow and are added to more indexes and portfolios.
Disclosure: This analysis is for informational purposes. Position sizing and risk management are essential. Do your own due diligence.
Please note that the Woodworth Contrarian Stock & Bond Fund, LP, of which the Millegan Brothers manage and are invested in, currently hold a position of RAIL as of the publication date of this article. They may or may not choose to modify their exposure to this name for any reason at any time. This is not a recommendation to buy or sell RAIL or any other name - investments incur significant risk, our risk tolerance may be significantly higher than the average investor, and any discussion in this article does not take into consideration your individual circumstances.
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Quinn Millegan (left) & Drew Millegan (right)
About the Managers: Brothers Drew Millegan and Quinn Millegan manage the Woodworth Contrarian Stock & Bond Fund, a hedge fund based in McMinnville, Oregon. They grew up in the finance world, and specialize in contrarian investment strategies in the US Public and Private markets.
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