NEW DIRECTIONAL CALL PLAYS

The Greenbrier Companies - GBX - close: 66.43 change: +0.57

Stop Loss: 63.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 855 thousand
Entry on November -- at $---.--
Listed on November 22, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below

Company Description

Why We Like It:
GBX is in the services sector. The company manufacturers railroad freight cars and ocean-going barges. They also refurbish freight railroad cars. New rules by the White House on railroad tanker cars that carry crude oil should mean strong business for GBX as companies are forced to either buy new cars or refurbish old ones to meet the new requirements. The problem is that these rules have not been approved yet.

The White House has delayed the construction of the Keystone Pipeline for years and it is still in limbo as the last vote on the pipeline this month did not pass. The booming shale-oil industry in the U.S. has produced a massive surge in oil transport by rail. The number of rail cars used to transport crude oil in the U.S. was 9,500 back in 2008. That number had soared to more than 415,000 rail carloads by 2013 and continues to climb.

Naturally it comes down to money. Oil firms paying to transport this oil want to delay these safety updates because it will be expensive. Yet the massive increase in oil transported by rail has led to a rash of train derailments with potentially deadly consequences. A couple of years ago there was a derailment in Canada and the oil inside ignited and wiped out a small town.

It has been months since the DOT proposed new rules. Public comments on it closed back in September. It's expected that new regulations could be out in the next few months. It would appear that businesses are already planning ahead and biting the bullet to buy new tanker cars because business at GBX has been soaring. The fact that crude oil prices have fallen to four-year lows has had no impact on demand for new railcars.

Bloomberg recently noted that the order backlog for railcars hit its highest level ever in the third quarter of 2014. A lot of that business is going to GBX. Greenbrier's Q2 report in July beat Wall Street's estimates on both the top and bottom line and management raised their guidance.

GBX's most recent earnings report was October 30th. Analysts were expecting a profit of $1.03 a share on revenues of $626.3 million. GBX met estimates with a profit of $1.03. Revenues surged +28% from a year ago to $618.1 million. That missed Wall Street's estimate but was still a record quarter for revenues. GBX said their aggregate gross margin rose from 16.3% in their third quarter (calendar Q2) to 17.2% in their fourth quarter (calendar Q3).

GBX reported that their backlog rose 5,100 units. The company saw new orders for railcars of 10,400 units worth more than $1 billion. After the last quarter ended they received another order for an additional 11,400 railcars also worth more than $1 billion. Their total railcar backlog hit a record 31,500 units with an estimated value of $3.33 billion compared to a backlog of 26,400 units at the end of May 2014.

GBX's Chairman and CEO William Furman said, "We leveraged our integrated business model to achieve our best annual performance yet and are well positioned to continue to grow in 2015 and beyond. We are obtaining the highest level of new orders in Greenbrier's history."

The company raised their fiscal year 2015 earnings guidance into the $4.25-4.55 range, which is above Wall Street's estimate of $4.15. They also expect revenues to come in above $2.5 billion, which is in-line with analysts' estimates of $2.54 billion. GBX issued a new goal to raise their aggregate gross margins to 20% by the second half of 2016.

Traders have been buying the dips in GBX for weeks and now the stock has a bullish trend of higher lows. Shares recently broke through resistance near $65.00. The big bounce has produced a buy signal on the Point & Figure chart that is forecasting an $85 target.

If this rally continues GBX could see a short squeeze. The most recent data listed short interest at 23% of the very small 23.3 million share float.

Friday's intraday high (Nov. 21st) was $67.45. Tonight I am suggesting a trigger to buy calls at $67.55.

Trigger @ $67.55

- Suggested Positions -

Buy the March $70 call (GBX150320C70) current ask $4.70

Option Format: symbol-year-month-day-call-strike

Daily Chart:

Intraday Chart: