The post-earnings action for Greenbrier Companies (NYSE:GBX) stock has been inauspicious, with Wall Street trimming targets accordingly. However, that has not meant a total loss of faith.
Shares fell 3.25% on Tuesday, adding to double digit declines in the past week largely driven by a sizable earnings miss that showed far weaker than anticipated profits.
In addition to a downgrade from Bank of America amid the slump, both Susquehanna and Wells Fargo significantly cut their price targets on the name given the big bottom line miss, squeezed margins, weaker than anticipated demand, and capacity constraints.
“The Railcar OEM business has been particularly challenged in 2022, caught squarely between rising steel prices that lift the price of railcars but not OEMs' profits and the NA freight rail industry where railroad capacity has constrained growth despite our sense that underlying demand for rail shipments still comfortably exceeds supply,” Susquehanna analyst Bascome Majors explained. “Now, rising macro uncertainty is closing the window of opportunity on
rail volume growth, putting the railcar OEM industry's still unmet cyclical potential at risk,
with railcars in storage rising for two straight months, another sign flashing yellow.”
Given these “flashing signs”, Majors cut his price target dramatically from $58 to $38. Still, he maintained a “Positive” rating on shares, advocating “taking a shot” on the stock after a recent selloff.
“Lack of freight rail volume improvement and rising macro uncertainty weigh on go-forward outlooks for both rails and rail equipment OEMs,” he advised clients. “But after a string of disappointments, at GBX’s current valuation we’re willing to hang on for better margins and sentiment.”
In a similar vein, Wells Fargo analyst Allison Poliniak-Cusic cut his price target by a significant margin after the big earnings miss, from $53 to $43. However, she too remained optimistic on the longer-term prospects for the stock.
“We believe that we have reached the bottoming of railcar demand with that headwind moving behind them into 2022,” she told clients. “We expect improvement in the macro environment spurring further increases in rail volumes, thus we see a pathway to improved order trends as we move through 2022.”
She added that Greenbrier’s (GBX) management can be trusted to execute in an uncertain environment, benefiting from “platform enhancements” pursued in the past decade. Poliniak-Cusic maintained a Buy-equivalent rating on shares, viewing the stock’s valuation as favorable following the sell-off.
Read the earnings call transcript.