Greenbrier Shows 2 Faces Of Rail

| About: The Greenbrier (GBX)
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The railroad business has two faces.

On the one hand, it's the cheapest way to move things across land, by far. Rail companies are heavily automated and computerized. They have seized great big hunks of the long-haul market from trucks, and should continue to do so. The whole sector is growing well.

On the other hand, coal is a big part of the business. Coal is in the scuttle with the natural gas glut. And rail is tied closely to international trade flows, which seem under threat as China slows and Europe goes into recession.

The Greenbrier Companies (GBX) show both faces.

  • The company turned in a strong quarter, with revenues up over 60% from a year earlier and net income that beat Wall Street estimates by 10 cents/share. Its backlog also rose.

  • The stock's reaction to that was to fall out of bed. It fell from $21/share down to nearly $18 on April 9, and early on April 10 it was trading at $17.70, down another 4% from Monday's close.

Greenbrier's actual business isn't running the railroad, but building and maintaining the stock, the freight cars that roll by my house every day. It picked up a fleet of 4,000 cars a year ago, and it maintains a manufacturing plant on the Baltic, with operations in Poland and Germany. It also makes marine barges near Portland, Oregon under the name Gunderson Marine.

Greenbrier's problem is the macro-story, not the micro story. Europe's troubles are assumed to put it into negative territory on that front. China's slowdown is expected to hurt the marine barge business. Coal's troubles are supposed to lower demand for rail cars.

Add to that the fact that the head of Greenbrier Rail Services, Timothy Stuckey, sold 1,050 shares at $19.54 each last week and you have all the excuse you need, in the near term, to sell, sell, sell.

But are those sales justified? Greenbrier has been steadily reducing its debt-to-assets ratio, by keeping its total debt level and paying what it owes when it's due. Its goodwill and intangible assets stay level, and while business has been up-and-down (the company lost money for its 2009 fiscal year) its operating income is steady at a little over $50 million/year and (thanks to previous losses) it's bringing more of that to the bottom line than before.

The long-term trend on Greenbrier is flat, and the PE ratio at current prices is below 15, meaning it's getting close to market. If you believe the economy is going south from here, you probably want to avoid Greenbrier.

If you think it's going up, and that saving energy will remain a key ingredient in the recovery, then you might want to find a place to buy in.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.