Seeking Alpha: Greenbrier's Thorny Valuation

Rail traffic may be a little twitchy these days as coal shipments plunge, but railroads and railcar leasing companies continue to rebuild their fleets after a major plunge during the recession. While Greenbrier (GBX) undoubtedly has a lot to gain from this multi-year cycle, the question of fair value gets a little tricky.

Another Strong Quarter
Certainly Greenbrier is making hay while the sun shines. Revenue jumped 60% this quarter as the company saw a 68% increase in car deliveries. More specifically, the company saw a better than 100% increase in car manufacturing revenue, while wheel service/refurbishment revenue rose about 7% and revenue from the leasing operations rose about 15%.

Profitability also dramatically improved as the company better covers its fixed costs. Reported operating income came close to tripling, while adjusted EBITDA more than doubled. All in all, the company handily surpassed the average sell-side EPS estimate, though the outperformance in revenue was not quite as large.

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Greenbrier's Thorny Valuation

Investopedia: Rail Traffic Suggests A Slower Pace

It's easy to overreact to month-by-month economic data, so any sort of spot analysis has to be taken with a grain of salt. That said, the pace of rail traffic seems to be resetting to a slower but still positive level. That, in turn, suggests that the recovery may have entered a phase where growth will be less impressive but perhaps enough to strike a favorable balance between the market's need for growth and the fears of an overheating economy. (For background reading, see A Primer On The Railroad Sector.)

The Numbers for March 

According to the Association of American Railroads' (AAR) Rail Time Indicators report, U.S. carload traffic in March 2011 rose 3.4% over 2010 and 2% from February 2011. That shows decent growth, but readers should also remember that bad weather earlier in the year curtailed some traffic at that time. Accordingly, it seems like growth is slowing as the year-over-year comps get increasingly difficult.

The numbers for Canada are different (up 0.9% in March 2011 from last year and up 3.7% from February 2011), but close enough to suggest that more or less the same trends are at work.

Intermodal results were a little different; for the U.S. there was 8.5% annual growth from March 2010 to March 2011 and 0.5% sequential growth since February 2011, while in Canada the respective numbers were 2% and -2.1% over the same time periods. (For more on rail stocks, check out Rail Stocks Chugging Right Along.)

To read the full piece, please go to:
http://stocks.investopedia.com/stock-analysis/2011/Rail-Traffic-Suggests-A-Slower-Pace-UNP-CSX-ADM-GMT-TRN-BRK.A-NSC0429.aspx

Note: Please note, due to an error in the editing process, publication of this piece was delayed about two weeks.