NEW DIRECTIONAL CALL PLAYS
The Greenbrier Companies - GBX - close: 73.24 change: +1.72
Stop Loss: 69.40
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Average Daily Volume = 600 thousand
Entry on September -- at $---.--
Listed on September 02, 2014
Time Frame: 8 to 12 weeks
New Positions: Yes, see below
Why We Like It:
The shale-oil boom in the U.S. has had a number of impacts. Obviously one of them has been a surge in U.S. production. A side effect of all this production has been the use of railroads to transport a lot of this crude oil. The U.S. department of transportation has reported that back in 2008 the railroads averaged about 9,500 carloads of crude oil transport a year. Today that number is closer to 415,000 carloads a year and likely to grow, especially as the U.S. government stalls any decision on new pipeline construction (like the controversial XL Keystone pipeline). Lack of options have driven a big surge in demand for railcars that can transport oil.
According to the company's website, "Greenbrier, headquartered in Lake Oswego, Oregon, is a leading supplier of transportation equipment and services to the railroad industry. We build new railroad freight cars in our 4 manufacturing facilities in the U.S. and Mexico and marine barges at our U.S. manufacturing facility. Greenbrier also sells reconditioned wheel sets and provides wheel services at 9 locations throughout the U.S. We recondition, manufacture and sell railcar parts at 4 U.S. sites. Greenbrier is a 50/50 joint venture partner with Watco Companies, LLC in GBW Railcar Services, LLC which repairs and refurbishes freight cars at 38 locations across North America, including 14 tank car repair and maintenance facilities certified by the Association of American Railroads. Greenbrier builds new railroad freight cars and refurbishes freight cars for the European market through our operations in Poland. Greenbrier owns approximately 8,300 railcars, and performs management services for approximately 235,000 railcars."
GBX's railcar manufacturing business is obviously growing due to the demand to transport oil but don't overlook the reconditioning and refurbishing business. Just two months ago (July 2014) the U.S. DOT proposed new rules on transporting crude oil and flammable materials. That's significant because the oil from the Bakken shale is volatile and prone to combustion. These new standards would phase out the old DOT 111 tank cars. This would force railcar owners to either buy new cars or retrofit the old ones to meet the new standards.
GBX earnings are projected to grow double digits in 2014 and 2015. Their most recent earnings report was July 2nd. Wall Street expected a profit of $0.74 a share on revenues of $572.4 million. GBX beat those estimates with a profit of $1.03 a share on revenues of $593.3 million. That was more than double its $0.50 earnings in the second quarter. Gross margins surged from 11.5% to 16.3%, well above prior growth estimates.
GBX management said their railcar backlog grew from 15,200 units from February 2014 to a backlog of 26,400 units as of May 31st. The estimated value of this railcar backlog is $2.75 billion. Their marine barge backlog hit $110 million. GBX went on to raise their guidance for Q4 and 2014. Management also said they bought back 352,000 shares during the prior quarter and they're only halfway through their $50 million stock buyback program.
Now some traders feel that shares of GBX may have gotten ahead of themselves. That's one potential explanation behind the big short interest. The most recent data listed short interest at 22.4% of the small 22.3 million share float. Further gains in GBX could spark more short covering.
Today's high was $73.29. We're suggesting a trigger to buy calls at $73.50.
Trigger @ $73.50
- Suggested Positions -
Buy the OCT $75 call (GBX141018C75) current ask $2.55
- or -
Buy the DEC $80 call (GBX141220C80) current ask $3.00
Option Format: symbol-year-month-day-call-strike