Greenbrier's historic PE multiple of 7.4 looks cheap
August 1, 2012
Greenbrier is one of the leading manufacturers of railroad freight car equipment in North America and Europe with refurbishment and leasing divisions also providing major sources of revenue (historically around 40% and 10% respectively). However, the railcar industry is thriving and in 2011 and 2012 the contribution of the manufacturing division has increased significantly while refurbishment and leasing have remained constant.
In 2011 net income increased 50% to $6.4 million and would have increased significantly more were it not for a $15.7 million loss extinguishing debt. However, more recently, in Q3 2012, revenue grew 60% to a record $507.8 million as deliveries during the quarter grew from 2,200 units in Q3 2011 to 4,500 units in 2012. Higher volumes allowed greater economies of scale and, as a result, net earnings for the quarter were $19.1 million compared to a net loss of $3.3 million the previous year.
The result is not a once off and Greenbrier's net income over the past 4 quarters totalled $63.9 million or EPS of $2.03 meaning the company appears to be on target to report full year earnings of $2.23. With consensus earnings forecasts of $2.70 in 2013, even with concerns about volatility, Greenbriers price of $14.96 and historic PE multiple of 7.4 looks cheap.
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Disclosure: The author holds no positions in Greenbrier and has no intention to initiate any in the next 72 hours.