Tag Archives: NYSE:GBX

Greenbrier: Zacks’ Bear of the Day Play

Despite a booming rail transport cycle, analysts can’t seem to downgrade Greenbrier (GBXSnapshot Report) often enough lately, largely after institutions have buried the shares by half since the spring.

It seems they are trying to get ahead of what they see on the horizon: a decline in industrial manufacturing and oil transport trends that Greenbrier rail cars have banked on for the past 5 years.

While a 7% miss on earnings last quarter didn’t help the outlook, what is amazing is how even reduced EPS estimates still have GBX trading at under 6X next year’s projected $6. Here are the detailed Zacks EPS tables showing the downward revision trend of the past 90 days…

Bottom line: GBX shares appear to be an incredible value, but that doesn’t mean the downward earnings momentum has stopped. Until it does, it’s best to wait for a different mode of transport. The Zacks Rank will let you know.

Kevin Cook is a Senior Stock Strategist for Zacks where he runs the Follow The Money portfolio.

Greenbrier: Zacks’ Bull of the Day Play

The price of oil and other commodities may be lower, but it sure doesn’t mean that the US is moving any less of the stuff across the country on the rails. And for that, you need a continuous supply of industrial-strength freight cars that meet the latest government safety standards.

That’s why Greenbrier Companies (GBXSnapshot Report) has seen its business grow by leaps and bounds in the past few years, especially after high-profile accidents involving extra-flammable Bakken crude and other hazardous materials.

In fact, the Pipeline and Hazardous Materials Safety Administration (PHMSA) wing of the Department of Transportation is expected to rule this month on the implementation timetable of stricter rail car construction and “retro-fitting” requirements. More on this controversy in a moment. Home on the Rails

Greenbrier, located in Lake Oswego, Oregon, is a $1.7 billion leading supplier of transportation equipment and services to the railroad industry with four integrated business segments: 1) Design and manufacture of conventional, inter-modal, and petroleum freight cars in four plants in the U.S. and Mexico; 2) Repairs and reconditioning of wheel sets at 9 locations throughout the US; 3) Leasing and financing; and 4) Fleet asset management services. They even have a marine barge unit.

The company’s rail asset management platforms include proprietary software tools that address the ownership, use and maintenance of approximately 216,000 freight railcars. They help customers design customized solutions and then assist with tools and support, or deploy a team to run fleet management for them.

The Battle Over Freight Safety

It was believed the PHMSA timetable might be as short as 2 years for all required safety improvements such as reinforced-steel petroleum and chemical tank cars. This would certainly benefit manufacturers like GBX.

But on October 1, shares of rail car makers Trinity Industries (TRNSnapshot Report) and Greenbrier were dropping hard in reaction to a request by the American Petroleum Institute (API) and the Association of American Railroads (AAR) for an additional year to retrofit old rail cars to transport, for instance, extremely flammable crude extracted from tar sands in Canada.

While API and AAR feel that unsafe rail cars could “harm consumers by disrupting the production and transportation of goods that play major roles in the economy,” Greenbrier went on record stating they believe the two-year time frame given for retrofits was “tight, but achievable.”

The fact that the regulator involved has given companies like Trinity and Greenbrier 2 years to make their rail cars safe to transport oil, while the API and AAR want to increase that to as much as 7 years, is creating the big uncertainty for these companies in terms of production schedules and backlogs.

But GBX CEO William Furman was adamant on last Thursday’s conference call that the PHMSA ruling wouldn’t have a negative impact on their business because industry demand was so strong looking out 2-3 years. He was also not concerned about dropping crude prices as this would be seen as a temporary blip 2-3 years from now. His optimism was reflected in the company guidance delivered last week.

The 60-day comment period for PHMSA’s comprehensive rulemaking proposal closed recently and we now await a final ruling by the department. There are about 3 options with timelines of 3-5 years. But the uncertainty is over whether the rule-makers will lean more toward 2 years or toward the API/AAR direction of pushing out safety improvements.

Another Strong Quarter and Guidance

On September 17, Greenbrier announced Q4 total railcar orders of 15,000 units (including 2,700 units announced on the Q3 call), worth $1.37 billion. The orders were broad-based across car types. Since the beginning of FY14, GBX has received orders for approximately 39,000 units valued at $3.72 billion.

The company also announced an order for a deck cargo barge, bringing total marine backlog to $112 million and ensuring barge work for the company through 2016.

On October 30, GBX reported their fourth quarter FY2014 results and posted in-line earnings and a 2.3% miss on the top line. But it was the guidance that reaffirmed the growth story. Railcar unit book-to-bill in the quarter was 2.17X (10,400 units booked vs. 4,800 billed), and at quarter-end, backlog stood at 31,500 railcars with a combined value of $3.33 billion.

That backlog number implies $106,000 per car vs. 26,400 railcars valued at $2.75 billion last quarter, which implied $104,000 per car. Management stated that less than 40% of the current backlog consists of tank cars. Subsequent to quarter-end, GBX booked orders for 11,400 units valued at $1.1 billion ($96,500 per car).

Management said they now expect deliveries in FY15 to exceed 20,000 units compared to consensus estimates closer to 19k. This is also compared to FY14 deliveries of 16,200 and FY13 of 11,600. With that kind of sales growth, you can see why GBX shares have quintupled in 2 years. And yet they still trade at 14X 1-year forward estimates. Here’s why…

The company believes revenues will exceed $2.5 billion and expects adjusted EPS in the range $4.25-$4.55 vs. the consensus before the report of $4.11. Analysts have quickly raised their estimates in the past few days and just happened to make the consensus fall right in the middle of company guidance at $4.40, implying EPS growth of 43% in FY15E.

The Long View

While GBX shares have been volatile lately due to the PHMSA process, some large investors continue to take a long-term view of the company in this part of the economic cycle where the transport sector is still gaining momentum.

In addition to Vanguard adding about 350,000 shares to bring their stake to over 1.8 million shares in Q2, the $21 billion Acadian Asset Management bought 586,058, increasing their stake by 271% to over 800,000 shares. As the SEC 13F filings roll in this week and next, we’ll see who else has been putting their money down on the rails.

Meanwhile, the Acadian buy told me that Greenbrier is still a solid and growing industrial small-cap I want to own as rail traffic keeps flying.

Disclosure: I own GBX shares for the Zacks FTM portfolio.

Kevin Cook is a Senior Stock Strategist for Zacks where he runs the Follow The Money Trader.

Greenbrier: Zacks’ Bull of the Day Play

The Greenbrier Companies, Inc. (GBX – Snapshot Report) isn’t a household name but this Zacks Rank #1 (Strong Buy) is in one of the hottest industries: railcars. Earnings are expected to rise double digits this year and next as the backlog expands.

Greenbrier builds railroad cars in 4 facilities in the U.S. and Mexico and also builds marine barges at its U.S. manufacturing facility. Internationally, it builds and refurbishes freight cars for the European market through its Polish operations.

It also reconditions, manufactures and sells railcar parts at 4 U.S. sites.

Big Beat in the Fiscal Third Quarter

On July 2, it was another solid quarter for Greenbrier as it easily crushed the Zacks Consensus Estimate by 39%. Earnings were $1.03 versus the Zacks Consensus of $0.74. This was more than double the second quarter earnings of $0.50.

Third quarter gross margin jumped to 16.3% from 11.5%, well outpacing the company’s guidance of a minimum of 13.5%.

It delivered 4,300 units in the quarter and received orders for another 15,600 railcars with a value of $1.65 billion.

Its backlog grew to 26,400 railcars valued at $2.75 billion. It also had a Marine backlog of $110 million.

It was also optimistic about its joint venture with Watco Companies to form GBW Railcar Services which will allow the companies to repair and refurbish tank cars at 38 sites across North America. Tank car regulations are driving the industry right now as the federal government is set to issue new regulations about the cars shortly.

Bullish Guidance

With the big backlog and the large beat in Q3, it’s not surprising that Greenbrier provided a very bullish forecast for the fiscal fourth quarter.

Revenue is expected to increase 4-6% with fiscal 2014 deliveries between 15,700 units and 16,000 units.

Earnings are expected to be in the range of $2.98 to $3.08 which was well below the Zacks Consensus which was $2.62.

The analysts immediately moved their estimates higher to the upper end of the guidance range, with 7 estimates being raised for fiscal 2014 and 8 increasing for fiscal 2015.

Earnings are expected to rise 53% in fiscal 2014 and another 30% in fiscal 2015.

Shares Have Been on a Tear

Investors have been piling into the railcar stocks. Greenbrier’s shares have more than tripled over the last year.

Does that mean it’s too late to get in?

Greenbrier trades with a forward P/E of 23.5 which isn’t cheap but you’re paying for that double digit earnings growth.

Greenbrier is also in a hot industry. The Transportation- Equipment & Leasing industry is ranked in the top 7% of all Zacks industries.

If you’re looking for a transportation stock that is a fast-growing name, Greenbrier is one you should keep on your short list.

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Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Insider Trader and Value Investor services. You can follow her on twitter at @TraceyRyniec.

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