E Targeting The Greenbrier Companies For A Bad Beat Investment

The Greenbrier Companies (GBX) stock has been stuck at about $50 a share since we made our sell call back in November. What is going on here, with the name having traded sideways since this action? Well, our BAD BEAT Investing portfolio is looking to buy Greenbrier at the right price. In this column, we wish to discuss with our followers at TalkMarkets what we are watching for. It is our belief that there is upside, but you need to have the right price.

Let us first summarize the most recent quarter which has served as a catalyst to drive shares lower. After reviewing the just reported earnings and subsequent 10-Q filing, there are clear fundamental strengths and weaknesses for the company that you must be aware of.

Sales were definitely strong. Revenues came in up 11.1% year-over-year to $629.34 million, surpassing our expectations after Q1 was reported of $619-$621 million.

This result is even more impressive when we consider that our expectations were a bit more liberal than the Street consensus, which was surpassed by $16.59 million. This is a substantial and impressive beat relative to projections and something that we really were surprised by. So what is going on?

Well, it is evident that this performance is a strong reversal from much of the bearish momentum in 2017. You may recall that for the fiscal year 2017, revenues came in at $2.17 billion, which badly missed our expectations of $2.35 billion for the year. Last quarter, the company missed expectations by $25 million, continuing the bearish trends in sales. However, this second quarter was strong, and much of the sales were driven by incredible international expansion.

This international expansion is why we really want to be behind the company. Greenbrier's international expansion is significantly contributing to each quarterly result now as these new markets are providing the company with new sources of revenue and a diversification of the backlog. What we found impressive is that nearly half of year-to-date order activity was generated in markets outside of North America. We will point out that 20% of Greenbrier's total backlog originates from outside North America. Railcar backlog declined. Railcar backlog as of February 28, 2018, was 24,100 units, valued at $2.3 billion. Railcar backlog has steadily been falling, as the company pushes hard to fulfill orders. However, the falling backlog could be a negative so keep an eye on it.

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Disclosure: No positions, but will open a position at GBX in $40 

Quad 7 Capital is a leading contributor with various financial outlets, and pioneer of the BAD BEAT Investing philosophy. If ...

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