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Can The Greenbrier Companies' (GBX) Train Keep On Rolling?

 November 19, 2012 12:51 PM
 


(By Rich Bieglmeier) Carl Icahn is popping up all over the place as of late in our weekly accumulation/distribution screens. The famed investor increased his stake by adding nearly another 10% in The Greenbrier Companies, Inc. (GBX). The railroad freight-car equipment maker ranked high on iStock's accumulation list with more than $5.2 million or 1.13% of the company's market-cap.

In 2008, the billionaire-investor tried to merge Greenbrier with his American Railcar Industries Inc. (ARII) but was unsuccessful. He's back for a second bite at the apple. GBX management acknowledged that Ichan reached out to CEO, Bill Furman saying the communications were "possibly relating to strategic opportunities."

[Related -The Greenbrier Companies, Inc. (GBX): Get Along, Sweet Little Stock, Get Along]

According to Susquehanna Financial Analyst, Bascome Majors, combining GBX and ARII makes sense from is point-of-view. He says, "Fundamentally, the mixes of these two companies are complementary."

Perhaps Furman agrees? "We believe this purchase of Greenbrier shares validates our business model and strategic decisions," says the CEO.

The news of Ichan's involvement lifted Greenbrier's price from $13.95 to $16.73, close to close November 12th and 13th. Last week's price spike dragged GBX off the mat and away for the year's low of $13.10.  However, shares got stuck at resistance in the neighborhood of $18. According to iStock's view of the railroad's price, it won't be able to roll freely until is bypasses $19.

[Related -Stocks Tumble Amid 'Cliff' Impasse; Research In Motion (RIMM) Slumps]

Can it get there? Certainly, Greenbrier's shares have room for multiple expansion as many key metrics are below the industry norm. Of course, discounts are the result of under-performance within the financial statements.  Relative to the industry, GBX management needs to increase their gross and operating margins as they lag the peer group. Greenbrier's gross margin stands at 12% and operating at 6%, against the industry average of 31% and 16% respectively.

However, when compared to railroad peers, GBX trades for 25 cents for every dollar per share in revenue, whereas the industry trades at 1.64 times sales. Ichan's new love has a trailing 12 month P/E of 9.21 versus the competition's 14.63. Based on future earnings growth, GBX's PEG ration of 0.72 looks attractive compared to 1.00 for the average railroad stock; although, both are attractive.

Relative to itself, Greenbrier Companies' stock is moderately priced. It currently trades at 1.05 times its book value (P/BV) while the five-year average is 1.143. Muck like its P/BV, GBX price-to-sales is slightly lower than the five-year norm of 31 cents on the dollar. Meanwhile, the current P/E of 9.2 is much closer to the five-year low of 6.38 than the average of 39.20.

Under current conditions, iStock feels The Greenbrier Companies, Inc. (GBX) is fairly valued with technical resistance overhead. We'd prefer to own the stock cheaper or wait for the price to break past $19, or for further involvement from Mr. Icahn.
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