Unlocked Trade Alert: Greenbrier Companies (GBX)
It pays to do fundamental research. This bullish Trade Alert on Greenbriar Companies (GBX) was issued on May 17. We bought September 50 Calls for $3.60, and closed them on July 3 for $6.00 (+66% winner). To learn more about our approach and how you can become a successful trader, sign up for a 4-week trial and test drive the JaguarLive chat room with some of the best traders: SUBSCRIBE
May 17, 2018
Greenbrier Companies (GBX)
Greenbrier Companies
Ticker: GBX
Sector: Railcar Manufacturer
Current Price: $50.00
Target: $55.00 (First) and $62.00 (Second)
Stop Loss: $45.00
Time Duration: 127 days
Trade Idea – Buy GBX September 50 Calls for $3.60 or less.
The bid/ask spread currently is 3.20 x 3.60 and volume at this strike is 10 and open interest is 372. Placing the order on the offer.
Power move yesterday. Power move today and now with surge of upside call activity in this railcar tank maker and this follows similar call buying in TRN few days ago as we pointed out.
– Buyer of 2,500 June 50 calls for $1.75 offer
– Buyer of 300 September 55 calls for $1.20 offer
Simple Yet Strong Case for Valuation Multiple Expansion – It is worth pointing out in last earnings report on April 6 company re-affirmed FY2018 delivery outlook of 21,000 units which equates to $2.5 billion in revenues. But also mentioned that its revenue backlog has increased sharply to 24,100 units. Meaning, as management suggested, FY2018 is now fully booked and FY2019 is also now “substantially” booked. This provides clean visibility into revenues for 6 quarters. Higher visibility means higher valuation. Note they raised FY2018 EPS guidance from $4.00 to $5.00 which includes $0.89/share tax benefit. So the core excluding tax was also raised. This spits out forward PE of just 10x with stock currently at $50 and EV/EBITDA multiple of 5x vs historic range of 4x-8x.
Additionally, one of the brightest things to come out of earnings report was pricing strength, which is a consistent theme we are seeing across entire transportation sector. Average revenue per car was $116,000, up +5% YoY, a notable reversal from the -10% decline in F1Q18, or $98,000/car. Given improved mix including auto and tank cars, manufacturing net margins were 16.1%, 40 bps above consensus with net revenue topping by $16 million ($0.31/sh). GBX received new orders for 3,400 railcars during the quarter, including hoppers, tank cars, and intermodal units. CEO Bill Furman noted that while the environment remains competitive, the North American railcar market is improving with fleet utilization and customer confidence up.
The point here is stock is cheap and growth is locked in with visibility for next 6 quarters. The EV/EBITDA multiples should expand to cycle peak, which equates to as high as $80 price target on the stock.
