I am retired and take educated guesses on all things financial.

July 06, 2008

July 6, 2008: Low Water. Barging Into American Commercial Lines

For American Commercial Lines (ACLI) it may be the worst of times.The floods in the Midwest are awful. This barge manufacturer, transporter and support services provider within the U.S. Inland Waterways System (including the Mississippi River System and Gulf Intracoastal Waterways has been around since 1915. Headquartered in Jeffersonville, Indiana, ACLI has subsidiaries in Seattle, Washington and New Orleans (Elliott Bay Design Group - EBDG)which is a leading architecture and marine engineering firm for all aspects of vessel design and Summit Contracting, based in Evansville, Indiana which provides emergency response, environmental remediation and industrial and civil construction services.

The main headquarters at Jeffersonville spans 5600 feet of frontage on the Ohio River. American Commercial Lines is the operator of Jeffboat, the main barge manufacturer on the inland rivers.

ACLI operates over 3,000 barges and 120 tow boats within their system. Repair facilities for their equipment and other inland marine craft and the contracting of construction barges and tow boats for third party clients in their dry docks is a profitable part of the company.

Flooding aside, environmental issues are working in ACLI's favor. One barge full of stuff equals fifteen rail cars or eighty truckloads of the equivalent weight materials. And barge traffic is statistically the safest mode of transport of all the major systems, including rail.

So why the 57% drop in share price since the beginning of the year? As one would assume correctly - floods. This horror story has cut deep into ACLI's profits as less grain, coal, steel and chemicals can be shipped because of uncertain channel conditions or the unavailability of product. Some of ACLI's facilities have been flooded out as well.

The current price of $10.19 per share is a far cry from the fifty-two week high of $27.30 reached July 13th of 2007. ACLI recently filed for a $200m unallocated shelf registration to protect itself against further issues.

Why buy the stock now? I believe the worst is over for the company, although grain will be an issue for the remainder of the year. Its enterprise value is 7.5 times operating income. More telling, the company is selling for less than the value of their boats.

Checking ownership, I find amongst other impressive participants in American Commercial Lines' future, Sam Zell owns approximately 25% of the company stock. Good company for the investor to keep. And a good reason for the patient investor to bottom feed on this company with more confidence than apprehension.

I am planning to barge in and purchase shares of this company after the current market downdraft abates.


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