The turnaround of Pacer is considered successful. The company has experienced a steady secular growth and penetration of the intermodal market, with an 8% revenue CAGR. Margins have improved due to economies of scale, and there is potential for further improvement in intermodal margins. The company has a good moat and a possibility of doubling its margins. Better execution has also led to a valuation improvement, closing the value gap between HUB and Pacer.
However, there are several investment risks associated with Pacer. These include industry risks such as the ability to pass on rail and trucking cost increases, the relationship with railroads as they are competitors and partners, the cyclical nature of the business and high operating leverage. Company-specific risks include substantial execution risks in margin improvement, failure to turn around the logistics division, lack of exposure to the rapidly growing local east intermodal market, lack of clarity in the new auto contract with UNP, the potential impact of the Panama Canal expansion, and the tumultuous company history.
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