Short-Squeeze In Greenbrier (NYSE: GBX): Now It’s Time To Go Long

Why Oh Why Were You Short Greenbrier?

This morning The Greenbrier Companies (NYSE: GBX) reported earnings sparking a massive short-squeeze. Short-interest going into the report topped 12% which is pretty high for any company. Upon looking at the company’s stats, not even considering today’s earnings report, I am struck by the question of why oh why would you be short Greenbrier to start with? Sure, the world is in a massive pandemic-related recession but this company has a fortress balance sheet, blue-chip business, and pays a wicked-high dividend. There was some risk, but was there so much risk going short was the right thing to do?

Before I move on, let me explain who the Greenbrier Companies are. The Greenbrier Companies are a group of businesses that design, manufacture, and market rail freight-car equipment in North America, Europe, and South America. The three main segments are Manufacturing, Wheels and Parts, and Leasing. Regardless of the condition of the economy, rail freight will continue to move and, if no new cars are needed, then lots of replacement parts and wheels will be. The bottom line. Greenbrier was not a good candidate for short.

Today’s Message Begins With The Letter “S”

Greenbrier’s fiscal 3Q report can only be called stunning. The company delivered top and bottom results that not only beat the analyst’s consensus but beat the consensus by such a large margin as to make me wonder if the analysts are paying attention. Revenue for the quarter came in at $762.56 and beat by $156 million, that’s 2500 basis points or 25% better than the consensus target. The strength in revenue more than carried through to the bottom line delivering ADJ EPS of $1.05 ($0.91 better than expected) and GAAP EPS of $0.83 ($0.78 better than expected).

Because the quarter’s results are so strong there is really no choice but for the analysts to begin raising their targets. As it stands, the YTD totals are already better than the FY consensus targets. Right now we’ve got a mixed field when it comes to the analysts. The average rating is neutral with a bearish bias but, of the six ratings that matter 2 are very bullish and 2 are very bearish. Price action was above the consensus target before the report which is another bit of evidence that suggests the analysts are way off base about this company. Looking forward, Greenbrier says it has a backlog worth $2.7 billion, enough to keep them busy for at least another year.

A Safe, High-Yield Stock

Shares of Greenbrier are still yielding better than 4.0% even after this morning’s price-pop. In terms of safety, this company has one of the strongest balance sheets I have ever encountered so there is very little expectation for cuts. To that effect, the company just declared the latest distribution today and it was in line with the previous

The payout ratio was running a bit high, near 100% of this year’s earnings, but that was before today’s release. Now, the payout ratio for the year will likely be in the sub-55% range. The history of payouts is a bit spotty, there were several distribution cuts in the 2000-2010 time frame, but the last five years have only seen aggressive increases in the range of 25%.

The Technical Outlook: Buy, Buy, Buy!

The technical outlook for this stock is good despite the fact that much of today’s pop is due to short-covering. Prior to today’s move, the stock had been consolidating in what is now a confirmed bullish-triangle. Using the prior rally as a starting point for projections it looks like this stock could gain as much as $10 in the not-too-distant future to hit the $32 range.