The Greenbrier Companies: All Aboard For High-Yield In 2023

Key Points

• The Greenbrier Companies cannonballs higher on solid results and guidance improvement. 
• Analysts aren't interested, but the institutions have been buying this high-yield stock. 
• The 3.5% yield only costs 12.5X earnings and is safe in 2023. 

While the recent string of highly-televised train derailments might be a cause for The Greenbrier Companies' NYSE: GBX Q2 strength, it isn’t. Data from the Federal Railroad Administration has 2023 on track to continue a trend of declining accidents. No, The Greenbrier Companies' strength is driven by demand for rail services that have deliveries up compared to last year and demand for new cars above expectation.

This means for investors at least another year of solid results for the high-yield dividend payer, and new orders are expected to remain solid through the end of the year. 

Trading at 12X its earnings, GBX stock is a value compared to the broad market, but its dividend yield is well above the S&P 500 average. The stock yields about 3.5%, with shares up about 10% in pre-market action. The payout ratio is also attractive relative to close competitor Trinity Industries NYSE: TRN, which trades at a higher valuation.

The Greenbrier Companies is paying about 44% of this year’s earnings consensus and 40% of next year’s, while Trinity is paying closer to 60%. The trade-off is that Trinity is paying about 100 basis points more in yield

The Greenbrier Companies, Reverses On Solid Results 

The Greenbrier Companies had a solid quarter, growing revenue by 64%. The gains were driven by a relentless effort to reduce the backlog, which hit record levels last year. The revenue beat the Marketbeat.com consensus by 460 basis points, with all segments outperforming expectations. The core manufacturing segment grew by 50%, with solid demand for various car types. The Maintenance segment grew by 14.6%, and the Leasing segment grew by 60% to hit 99% of prepandemic levels, up 100 bps from last year’s 98% use rate. 

The company’s margin widened but was slightly less than expected compared to last year. The takeaway is that $0.99 in adjusted EPS beat by $0.03 or 315 basis points and is more than double the $0.38 posted last year. Regarding New Orders and Backlog, the pace of new orders fell YOY but remains solid at 4,500 for the quarter.

The backlog is also down YOY but solid at 25,900 cars or about 3.5 quarters of production at the Q2 delivery rate. Q2 deliveries of 7,600 are up 58% YOY and compounded by inflation-offsetting price increases. 

The guidance is favorable, with higher revenue than previously stated and margins expected to remain steady. The company expects $3.2 to $3.6 billion in revenue compared to the analysts' consensus of $3.45, which, in light of the 10% surge in share prices, the market had been expecting much worse.  

Institutional Support Strong For The Greenbrier Companies 

The analysts are not excited by GBX stock, which has allowed their ratings to expire. The stock has only 2 current ratings, and they rate it a weak Hold with about 12% upside potential. On the other hand, the institutions own about 95% of the company and have been buying for the last 12 months. Their activity picked up in Q1, and no wonder the stock is at the bottom of a ten-year range and offering a high yield with a solid outlook for earnings. 

The chart of Monthly price action shows a bottom at $25, with a second test confirmed by today’s 10% surge. The weekly chart echoes that sentiment and suggests a move to $40 and 52 is underway. The next hurdle is resistance at the $36 level; if the market can not get above there, it will remain range bound for the next quarter or 2.