High-Yield The Greenbrier Companies, Inc Pulls Into A Buying Opportunity

The Greenbrier Companies, Inc Recovery Is Well Underway 

The Greenbrier Companies, Inc NYSE: GBX has yet to recover its pre-pandemic revenue levels but the recovery is well underway. The company just reported the 4th consecutive quarter in which new orders outpaced deliveries and the backlog grew. The backlog stands at 28,000 new units worth more than $3 billion in sales or enough business to fuel the company’s operations for next year and new orders are still rolling in. In our view, The Greenbrier Companies is not a high-octane growth stock or even one with an outlook for sustained growth but it is growing, it’s undervalued, and it pays a healthy and reliable dividend we see growing within the next 24 to 26 months. 

The Greenbrier Companies Beat And Raise In Q1 

The Greenbrier Companies experienced both sequential and 2-year contraction in its business but the business is good. The company reported $550.7 million in net revenue for a gain of 37.6% over last year and 350 basis points better than the Marketbeat.com consensus estimate. The revenue was driven by strength in all segments as Manufacturing, Maintenance, and Leasing are all on the rise. The leasing segment is the smallest contributor of revenue but a driver of growth nonetheless. The company invested deeply into the segment doubling its size during the quarter. 

Moving down to the income portion of the report, the company experienced a significant improvement in margin due to the leverage of fixed costs related to the reopening of pandemically affected businesses. The company’s GAAP and Adjusted earnings both came in at $0.32, growing YOY and in the 2-year stack, to beat the consensus by $0.20 and $0.11 respectively. 

Looking forward, the company is expecting to see the rebound continue to gain momentum due to new orders, the book-to-bill ratio, and the growing backlog. The company received orders for 6,300 new railcars for a book-to-bill ratio of 1.5X. This is the fourth quarter with a book-to-bill ratio above 1.0X and it is leading to higher backlogs. The backlogs increased to 28,000 railcars or nearly 4,000 cars versus last year. Looking forward, the company is expecting to deliver 17,500 to 19,500 cars in 2022 versus the 13,000 cars delivered in FY 2021 but there is a problem. The guidance is good but expects a significant uptick in deliveries for the second half which opens the door to numerous potential revenue impacting hiccups. The good news is that guidance implies the revenue will be slightly above the consensus estimate. 

The Greenbrier Companies Dividend Is Still Safe 

The Greenbrier Companies cash balance fell over the past year but this is due to investment in capacity, raw materials inventory, and the expansion of the rental fleet which are all net-positive for revenue and cash flow as well as non-recurring. This leaves the balance sheet a little strained but, again, the impact will be fleeting and leaves the door open to a possible dividend increase at the end of the fiscal year. The current payout is worth 2.6% in yield, by the way, and is worth less than half the Marketbeat.com consensus earnings estimate which we know is too low. 

The Technical Outlook: The Greenbrier Companies Fall To Support 

The Greenbrier Compies share price moved sharply lower in the wake of the Q1 release but the move is far less bearish than it might have been. The move is driven by short-sellers more than anything else and has not broken key support. Key support is at the bottom of a near-12-month consolidation range near the $40 level. We expect to see this level tested for support, and for support to maintain price action if not spark a rebound. Longer-term, price action may move sideways within the range but we are expecting it to break out to the upside as revenue levels approach the 2019 levels.