GBX

Investment Analysis Clubs Saul’s Investing Discussions
#1

GBX - it reported really good results this morning. At the mid-point of its FY 15 guidance ($5.80), the stock has a forward PE of 10.8! It just upped its earnings guidance. See the following Fool article:
http://newsletters.fool.com/1008/coverage/updates/2015/04/07…

Hi anirban, I took a look at it but the recommendation itself refers to lumpy cyclical results with swings from profit to loss in the past. I already have a position in railroads in WAB, which has been very consistent, improves each and every quarter over the year before for as far back as I can look, and whose stock price has been up every year for the past 14 years (the only stock in on any US exchange that can say that). I don’t see any reason to put my money in a less proven, cyclical company. I think it’s best to stick with WAB (My opinion, anyway).

Saul

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#2

Thanks Saul.

I haven’t compared WAB and GBX, so I can’t tell the difference but it appears that GBX has undergone some amount of transformation which partially explains the good results, and may be the low PE because of market skepticism. WAB is also significantly more expensive in PE terms than GBX, but may be there’s a very good reason to it.

I haven’t done enough digging to figure out if GBX is an opportunity. I will post if I can get some time to figure it out.

Anirban

#3

WAB is the most under appreciated stock IMO…it is indeed Old Faithful.

It’s 5 year track record vs the S&P index is a gain of around 300% vs approximately 80%. 10 year record is even better: some 800% gain for WAB vs less than 100% gain S&P.

Whenever I consider almost any stock for new purchase I find myself comparing it’s returns to WAB. And WAB has a small .25% dividend.
Like Saul, I compared GBX’s long term returns to WAB and decided it was no contest.

I’m sticking with Old Faithful as one of my long term core holdings.

Jim

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#4

I haven’t compared WAB and GBX, so I can’t tell the difference but it appears that GBX has undergone some amount of transformation which partially explains the good results, and may be the low PE because of market skepticism. WAB is also significantly more expensive in PE terms than GBX, but may be there’s a very good reason to it.

Hi again Anirban, Here’s the good reason:

WAB revenue in millions of dollars:

2010 - 1507
2011 - 1968
2012 - 2391
2013 - 2566
2014 - 3044

Granted, some of that is acquisitions, but here are the earnings:

2010 - $1.28
2011 - $1.85
2012 - $2.60
2013 - $3.04
2014 - $3.62

Here’s what the last five December quarter earnings looked like:

32 cents
48 cents
67 cents
79 cents
95 cents

They will have roughly a PE of 25 when the first quarter is announced. Results like that over 14 or 15 year seem worthy of a PE of 25. Why would I buy a company whose earnings are “lumpy” and “cyclical” if I can buy WAB. WAB is also a Hidden Gems recommendation, and a Stock Advisor too.

Best

Saul

For FAQ’s and Knowledgebase
please go to Post #7062

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#5

Thanks Jim & Saul.

If I am to add a railroad type company in my industrial basket, I guess it would make sense to at least start with a position in WAB.

Anirban

#6

Looking at Klein charts is part of my process:

WAB 16: http://invest.kleinnet.com/bmw1/stats16/WAB.html

GBX 20: http://invest.kleinnet.com/bmw1/stats20/GBX.html

Talk about volatility!

Denny Schlesinger

#7

Some homework on my part, just to get familiar with reading 10-Ks and 10-Qs. The numbers for WAB are from Saul’s earlier e-mail.

Revenue (Sales) in millions of dollars:


        WAB      GBX    
2010 - 1507      756
2011 - 1968     1243
2012 - 2391     1807
2013 - 2566     1756
2014 - 3044     2203

Diluted earnings per common share:


        WAB      GBX    
2010 - $1.28     0.21
2011 - $1.85     0.24
2012 - $2.60     1.91
2013 - $3.04    (0.41)
2014 - $3.62     3.41

December quarter earnings in cents:


        WAB      GBX 
2010 -  32       0.33   (Loss in first two quarters)
2011 -  48       0.42   (Loss in the three previous quarters)
2012 -  67       0.26
2013 -  79       0.64   (2.10) loss in Q3
2014 -  95       1.43

Net Earnings in Millions (Revenue - COGS - Operating expenses):


         WAB     GBX 
2010 -   123       4
2011 -   170       6
2012 -   252      59
2013 -   292     (11)
2014 -   352     112

Other stats:


         WAB     GBX
Cash    425 M    119  M
Debt    521 M    419  M
MktCap  9.14B    1.71B     
PE      26.20    12.54

GBX Fiscal Year End is (10-K): August 31, 2014
WAB Fiscal Year End is (10-K): December 31, 2014
GBX: 2013 includes a non-cash goodwill impairment charge of $71.8 million net of tax and a restructuring charge of $1.8 million net of tax.

About GBX from the company web-site:
THE GREENBRIER COMPANIES [NYSE: GBX] is one of the leading designers, manufacturers and marketers of railroad freight car equipment in North America and Europe, and a manufacturer and marketer of ocean-going marine barges in North America. We are a leading provider of railcar refurbishment and parts, leasing and other services to the railroad and related transportation industries in North America.

About WAB from the company web-site:
The original Westinghouse Air Brake was founded in 1869 by George Westinghouse shortly after he successfully demonstrated the first straight air brake systems to the railroad industry.
Today, Wabtec manufactures a broad range of products for locomotives, freight cars and passenger transit vehicles. The company also builds new locomotives up to 4,000 horsepower and provides aftermarket services.

Conclusion: GBX is still a comparatively smaller company, just breaking out into a growth phase. The “volatility” in the stock price is observed in Q3-Q4 of 2014 and may have been due to oil, The stock price dropped from all time high of ~$75 to $45. The company came out and issued guidance that other segments are picking up the slack left by oil.
I could not get a handle on the Goodwill in Q3 of '13 that causes the bilp the earnings. I don’t see the share price being affected by this blip, can someone explain why?
I’d say I could put some money into this, but have to watch this like a hawk before it gets to any where close to being a stable growth company like WAB.

It’s my first time doing this, using it as a learning experience.
I still haven’t completed reading the FAQ, so please pardon any mistakes you come across.

Kris

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#8

Excellent work Kris!

Please keep posting. When I read the GBX 10K I too came away with the feeling that they are onto the next stages of growth. I will try to finish my work on GBX, hopefully this weekend.

Anirban.

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#9

I could not get a handle on the Goodwill in Q3 of '13 that causes the bilp the earnings.

Greenbrier acquired a company called Meridian in 2006 which has morphed into their Wheels, Repair & Parts segment. They paid $237.9M for Meridian, but the market value of Meridian’s net assets was only $74.2M. The difference of $163.7M was recorded as Goodwill.

Every year Greenbrier is required to test the value of its Goodwill. In Q3 FY2013 the company determined that that the fair market value of its Goodwill was less than the value it was carrying on its books. They determined this by looking at the value of other companies in the same business as well as re-estimating the future cash flows from the Wheels segment. So they recorded a one-time, non-cash loss of $76.9M – called an “impairment” – to bring the carrying value of the Goodwill in line with the fair market value.

I don’t see the share price being affected by this blip, can someone explain why?

Most of Greenbrier’s stock is owned by institutions and funds. A one-time, non-cash charge like this is not going to affect their holding.

Ears

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#10

Ears,

Thanks for the explanation, I figured it was an acquisition but searched for a company called Wheels, Repair & Parts.

Krish

#11

-------- WAB GBX
Cash 425 M 119 M
Debt 521 M 419 M

Looking at Kris’ stats, do you guys think it should be a concern that GBX’s Debt is over three and a half times its Cash, or do you think Debt is just something that comes with the business they are in (I see that WAB has about 23% more debt than cash too, which, while tons less, is still a little worrisome). Do you think the debt is a danger of any sort? If so, what?

Thanks,

Saul

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#12

I have not looked at GBX, what follows is a generic comment.

I don’t think it’s a good indicator to compare debt to cash. Comparing debt to assets is more “holistic.” I don’t mind debt in asset heavy industries like railroads but I do mind debt in asset light businesses.

For a business where debt is a reasonable liability it should be evaluated on the basis of the company’s ability to pay interest and to pay back capital when it’s due. Also, there have to be enough assets to let creditors sleep well at night, you don’t want them to ask for their money back ahead of time.

Bankruptcy is not a question of making or losing money but the inability to pay your creditors on time, it’s a question of solvency:

solvent |'sälv?nt|
adjective
1.- having assets in excess of liabilities; able to pay one’s debts: interest rate rises have very severe effects on normally solvent companies.

Denny Schlesinger

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#13

Adding CNI (Canadian National Railway company).
Revenue (Sales) in millions of dollars:


        WAB      GBX      CNI
2010 - 1507      756     8297
2011 - 1968     1243     9028
2012 - 2391     1807     9920
2013 - 2566     1756    10575 
2014 - 3044     2203    12134

Diluted earnings per common share:


        WAB      GBX      CNI
2010 - $1.28     0.21    2.24
2011 - $1.85     0.24    2.70
2012 - $2.60     1.91    3.06
2013 - $3.04    (0.41)   3.05
2014 - $3.62     3.41    3.89

December quarter earnings in cents:


        WAB      GBX      CNI
2010 -  0.32     0.33*   0.54
2011 -  0.48     0.42^   0.66
2012 -  0.67     0.26    0.70
2013 -  0.79     0.64#   0.76
2014 -  0.95     1.43    1.03
    • (Loss in first two quarters)
      ^ - (Loss in the three previous quarters)

- (2.10) loss in Q3

Net Earnings in Millions (Revenue - COGS - Operating expenses):


         WAB     GBX      CNI
2010 -   123       4     2104
2011 -   170       6     2457
2012 -   252      59     2680
2013 -   292     (11)    2612
2014 -   352     112     3167

Other stats:


         WAB     GBX     CNI
Cash     425M    119M     52M*
Debt     521M    419M     8409M^
MktCap  9.14B    1.71B   54.25B   
PE      26.20    12.54   21.79
  • down from 214M in '13 and 155M in 12
    ^ Not sure if I have the Cash and Debt numbers correct for CNI.
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#14

Looking at that chart it would seem the best time to buy WAB is a recession. After a stock market crash. Because it always comes back.

#15

Looking at that chart it would seem the best time to buy WAB is a recession. After a stock market crash. Because it always comes back.

That’s the idea behind the BWW Method. If a stock drops for no fault of its own, it then becomes a fat pitch. As you can tell, I’m very fond of the Klein charts because they give you a bird’s eye view of the stock’s history which helps to pinpoint events one should be investigating. Why did it drop? Why did it rise? Will this stuff repeat?

Denny Schlesinger

#16

Assets in some industries may highly illiquid. For instance a railroad can’t sell it’s tracks to raise cash quickly, If you want to sell company cars there are lots of buyers, if you want to sell parts of a railroad there are fewer buyers.

Some industries have huge capital requirements and must have debt. Others like Dendron , a drug company, got in debt to expand but got over extended and went bankrupt when the drug didn’t meet sales expectations. The debt in this case was basically speculative.

The rapid sales and profit increases of companies like railroad suppliers, restaurant ovens, and car dealerships shows how much profit potential there can be in seemingly prosaic businesses. If you can only identify them early

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