Company Review: Greenbrier Companies Inc. (GBX)

Company Profile: Greenbrier Companies Inc. (GBX) (obtained via Google Finance)
The Greenbrier Companies, Inc. is a designer, manufacturer and marketer of railroad freight car equipment in North America and Europe. It provides leasing and other services to the railroad and related transportation industries in North America. It has two business segments. The manufacturing segment produces double-stack inter-model railcars, conventional railcars, tank cars and marine vessels, and performs railcar repair, refurbishment and maintenance activities. The Company produces rail castings through a joint venture and also manufactures freight cars through the use of subcontractors. During the fiscal year ended August 31, 2006, the leasing and services segment owned approximately 9,000 railcars, and provided management services for approximately 135,000 railcars for railroads, shippers, carriers, and other leasing and transportation companies. In November 2006, it acquired Meridian Rail Holdings Corp., which principally conducts business under the name Meridian Rail Services.

 

Business and Management Review

1) Is the business simple and understandable?
This business relies solely on the health of the rail freight industry, as they supply the rail cars that move product. The company leases rail cars to railroad companies, as well maintains those cars as maintenance occurs. The company as well supplies vessels for marine usage.

 

2) Does the business have a consistent operating history?

The railcar industry has had continued success due to the continuing usage of railroads across the United States. Seeing that the physical railcar is the “nuts and bolts” of a railroad, the company has enjoyed long standing prosperity.

 

3) Does the business have favorable long term prospects?
As with the prior railroad companies, we see no reason to question the continued success of this industry. In particular with Greenbrier, the fact they lease their railcars allows a continued stream of cash flow which further helps this company within the industry.

 

4) Is management rational?
The company is performing as well and in some cases better then their peers within the industry, and we cannot find reason to fault management for their decisions. The company is in a growth phase as they have made large acquisitions in the past few years. As well, the company is investing heavily into capital expenditures with an average rate of 14.92 over the past five years. This compared to the industry average of 4.84 shows where the cash is going within the company. We find this to be positive as they are looking forward and strengthening their infrastructure as well exploring other product lines. Even with the heavy capital expenditures the company has still beaten the industry average of ROE, with a five year average of 9.57 versus 8.69.

 

5) Is management candid with its shareholders?
The company’s investor relation page contains easily available public information. There is nothing special about the page, but at the same time all the pertinent data is present and easily accessible.


6) Does management resist the institutional imperative?
We see management looking towards the future for the company and acting in the best interests of the shareholders.

 

Financial and Value Review
Defensive:
1) Size of firm
With a market capitalization of around $440 million, the company fails the test of being greater than $2 billion.

 

2) Strong financial condition

Greenbrier’s current ratio is around 1.70 which falls short of the requirement of being over 2, therefore failing the test.

 

3) Earnings stability
The company has failed to have positive net income for the past ten years. Failure of the test is the result.

 

4) Dividend record
The company has failed to pay a consistent dividend over the past ten years; therefore, they fail this test.

 

5) Earnings growth
Greenbrier has grown EPS by one third over the past ten years and passes this test.

 

6) Price to earnings analysis
The P/E ratio is below 20 at around 18 which pass the test.


7) Price to assets analysis
The P/B ratio is below 2.5 at around 2 which allow the firm to pass this test.

 

Overall

Greenbrier passed 4/8 of the tests for the defensive investor, but failed to pass the requirement of at least seven. We therefore would not recommend this stock be placed in the defensive investor’s portfolio.

 

Enterprising:
1) Strong financial condition
The firm has a current ratio greater than 1.5 and passes the test.

 

2) Earnings stability
They have not had positive net income for the past five years and as result, fail the test.

 

3) Dividend record
The company pays a dividend. Pass

 

4) Earnings growth
Earnings are greater than five years ago. Pass

 

Overall
With a score of 3/4, Greenbrier passes the test for the enterprising investor and meets their investing criteria.

 

Valuation:
We find a fair market price for Greenbrier at about $31 per share.

 

Opinion:
With a current price (close 1/12/07) of $27.68 we find this stock to be suitable for the enterprising investor. We feel that management in looking in the right direction and the firm has favorable long term prospects.

Neither of us held a position in The Greenbrier Companies at the time of publication.  Also, please read our disclaimer and Our Methods.

This is the fifth part of our study of the Rail Transportation sector.  Please come back in the next couple weeks for the following articles:
Monday, January 8 – Jon – Burlington Northern Santa Fe (BNI)
Tuesday, January 9 – Ben – Union Pacific Corporation (UNP)
Wednesday, January 10 – Jon – Kansas City Southern (KSU)
Thursday, January 11 – Ben – Providence & Worcester Railroad Co (PWX)
Monday, January 15 – Jon – The Greenbrier Companies (GBX)
Tuesday, January 16 – Ben – Genesee & Wyoming Inc. (GWR)
Wednesday, January 17 – Jon – Canadian National Railway (CNI)
Thursday, January 18 – Ben – Norfolk Southern Corporation (NSC)
Monday, January 22 – Ben – Overall Industry Analysis & Introduction of Next Industry

 


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