Trinity Industries (TRN) is still an attractive value investment according to Hodges Capital Management’s Eric Marshall, who specializes in finding varied sources of mispriced value and revisited his Trinity Industries idea in this month’s issue of Value Investor Insight.

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Trinity Industries: It can’t get any worse 

Marshall last visited Trinity Industries back on August 31, 2015, when the stock was trading around $27. At the time, he believed that the market was overreacting to both the impact of lower oil prices on the company’s business and to an adverse jury verdict. Marshall went on to predict earnings per share of $4 or more for 2016 with additional benefit from the court case being thrown out. Simply put, at the time he made this forecast, Marshall believed that Trinity was a special situation with an upcoming catalyst that the market didn’t seem to understand. The price target at the time was $45 per share.

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Today much has changed for Trinity Industries the company has slashed its earnings outlook for 2016 as the impact of declining oil prices on the company’s business was more severe than expected. After posting record earnings per share of $5.10 last year, this year the company is now guiding for earnings per share of $2 to $2.30 this year. Railcar orders are down sharply, and the mix of those sold is less profitable. Leasing profits, bolstered in prior years by fleet sales, are off as those sales have dried up.

However, Marshall remains upbeat about the company’s prospects for a number of reasons. First, while it could get worse for Trinity, Marshall believes that the companies trough earnings will be much closer to $2 per share than a year $0.70 in earnings per share in the company earned back in 2009. If earnings return to $3 or so per share during the next two to three years, the mid-cycle point then the stock could return to the mid-$30s.

Marshall estimates the net liquidation value of the company’s assets in the low-to mid-$20s per share, providing strong downside support. All in all, Trinity is currently trading at a trough cycle multiple, and any uptick in earnings should quickly translate into gains for shareholders. Marshall also notes that now is not the time to sell as it would “compound our mistake.”

That being said, he is not buying either, instead, he's waiting for indication that the railcar cycle has hit a bottom. When that the company’s book-to-bill ratio of railcar orders to railcars shipped returns to 1:1, Marshall tells Value Investor Insight he’ll be ready to start buying again as this should indicate a cycle bottom, “which is where you make your real money in this type of stock.”