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Greenbrier Is (Still) Too Expensive

Patrick Doyle profile picture
Patrick Doyle


  • Although the shares have underperformed since I wrote my cautious note on the company in December, they are still expensive in my view.
  • In this article, I dig into the recently published financial statements and find that the company is performing in line with 2019. That year was a nadir for profitability.
  • I offer an update on my short put strategy. I'm very happy with the results.

Since publishing my cautious piece on the Greenbrier Companies Inc. (NYSE:GBX) in early December, the shares are down about 12%, against a loss of 5.3% for the S&P 500. Since the Coronavirus scare has obviously impacted both the S&P 500 and Greenbrier, an apples to apples comparison reveals that Greenbrier has underperformed significantly. That said, I think a company that was a risky investment at $28 may be a great investment at $24 so I thought I'd check in on the name. Also, the company has since released financials, so it's worth another look at this stage. Finally, in early December I recommended that investors sell puts in lieu of buying shares, and I thought I'd check in on that trade and compare how put writers fared relative to people who simply bought the shares on December 4th. For those few people who missed the bullet points above, and who are too impatient to read to the end, I'll state the point upfront. I think investors would be wise to continue to avoid Greenbrier. I'll go through my reasoning below.

Financial Update

Since I last looked in on Greenbrier, the company has announced financials, so that requires some commentary. In my estimation, there are a few notable things that jump off the page from the latest 10-Q relative to the same period a year ago. First, in spite of the fact that total revenue climbed in the period by just over 27%, net earnings attributable to Greenbrier shareholders absolutely collapsed, and is down just over 57%. The reason for this relates entirely to the fact that there was just under $10.4 million less in net gain on disposition of equipment. So, stripping out the impact of this noise, the company's profitability was very similar in the most recent quarter as compared to the same period a year ago. The result of this is that

This article was written by

Patrick Doyle profile picture
I'm a quant investment newsletter writer who marries fundamental analysis with the latest research in momentum. Over the past few years, I’ve developed a piece of software that helps me track the level of optimism and pessimism embedded in stock price. I seek to challenge the assumptions embedded in price by profitably exploiting the disconnect between what the market thinks and what is a likely outcome. I invest in those companies that have a greater than average chance of giving us all a surprise in the next few months.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I'm still short the June puts mentioned in this and the earlier article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (12)

Dear Patrick, how about now? GBX trades for $19.
Patrick Doyle profile picture
It's definitely getting interesting.
valuinvstr99 profile picture
You say, "... total revenue climbed in the period by just over 27%, net earnings attributable to Greenbrier shareholders absolutely collapsed, and is down just over 57%. The reason for this relates entirely to the fact that there was just under $10.4 million less in net gain on disposition of equipment."

My comments refer to the GBX Consolidated Statements of Income, pages 5 & 6 of the 1FQ20 10Q.

After the lower gain on disposition entry [$(3,959)] noted above Net Earnings is $24,011 [$0.72 EPS], which is actually an increase yoy. The earnings collapse to $0.23 EPS you call attention to [$7,669 from $17,956 yoy] is after net earnings attributable to non-controlling interests of $(16,342) from $(5,426) yoy. It appears to me that the lower gain on disposition of equipment is not entirely the reason for the earnings collapse. How are you recognizing the non-controlling interests negative? What is the significance of the non-controlling interests negative? Please explain why you omitted the non-controlling interests in your financial assessment.
Patrick Doyle profile picture
Hi. Ok, it's been years (decades actually) since I've answered questions posed to me in the manner that you've chosen. Are you one of my former professors or something?
Anyway, yes I guess the impact of non-controlling interest also impacted net income massively. In my view, the conclusion remains the same. I omitted non controlling interests for the same reason I omitted many of the other elements of the income statement: it's a judgement call. I care about certain things like net income attributable to owners. I think once we start moving up the income statement, we can get a bit too forgiving to management in my estimation, and can tell ourselves "oh, it's OK because interest and FX were higher this year so let's give management a pass", for example. The source of all investor returns is sustainable earnings, and much else is noise.

I don't quite understand your other questions "How are you recognising the non-controlling interests negative?" for example. Here's a good resource on non controlling interests that you might find interesting and that I hope answers your questions.
Take it easy.

valuinvstr99 profile picture
Thank you for the reply.

I am not one of your former professors. I hope that is a good thing.
The sole purpose my inquiry is to more fully understand and follow your analysis. Thank you for the youtube link on non-controlling interests. I did find it interesting and instructive. However, the video left me wondering what the future impact of non-controlling interest will be on GBX earnings.

Regarding understanding my other questions, you answered the questions. You elected to not address certain elements [classified as noise] of the income statement; in other words, you chose to not comment on the non-controlling interest. And, you confirmed that non-controlling interest did impact earnings. I think non-controlling interest impact on net earnings was significant and deserved mention and analysis.
Byron Clarke profile picture
Valuinvstr99, GBX owns a portion of their factories in Mexico. Their Mexican operations were far more profitable than their American operations last year.

The way GAAP works, GBX has to report all revenues and expenses of their Mexican operations and then subtract out the profits from the portion of those operations they do not control.
Peter Angus profile picture
I am long gbx. Thanks for the article. I enjoyed reading your thoughts. With the market plunge due to coronavirus issues, I have been adding to RBC and CNR. In my judgment, you don’t have to get fancy, when you can add RY at around $100 on the TMX and CNR at $113 and change. Your articles are always a good read.
Seven Corners Capital Management profile picture
CEO Furman dumped most of his stock in the 40s, claiming it was for "estate planning" or some similar BS. Really he was just dumping for dumping's sake, let's be honest. Then he promotes a bean counter [former CFO Lorie L. Tekorius] to the COO role. Since when does a bean counter know how to run GBX's rail operations???

Management is grossly overpaid. Overseas and domestic empire building has done nothing to create shareholder value. Bottom line, GBX is a company run for the benefit of management rather than the shareholders & desperately needs an activist investor to show up.

Seven Corners Capital Management profile picture
No insider buying in years - in fact, insiders were dumping stock as recently as a few weeks ago. They won't spend a dime of their own money betting on their abilities to increase the stock price, why should anyone else? Pathetic.

Watch what they do, not what they say.


Seven Corners Capital Management profile picture
Furman hasn't purchased any stock since 2011.


He was probably afraid of an activist (and, indeed, Icahn showed up with a 13D about a year later).
Seven Corners Capital Management profile picture
Stock is now down 33% on the year. Will any insiders have the balls to step up and buy GBX on the open market (and thus bet on their own abilities)???

Don't hold your breath...
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