Investing

Options Traders Seemingly Win Big on Greenbrier Trade Before Q3 Print

Ben Ward

Published: June 30, 2023 7:55 am

Last Updated: June 30, 2023 11:35 am

The share price of Greenbrier (US:GBX) rose a whopping 31.8% in Thursday’s trading session following the announcement of its better-than-expected third quarter earnings. The Lake Oswego, Oregon-based transportation manufacturing company surpassed Wall Street estimates on multiple fronts, recording strong performance in its various segments.

Ahead of Friday’s regular session, GBX stock is giving back less than 1% in premarket activity.

In Q3, Greenbrier reported adjusted net earnings of $1.02 per diluted share, surpassing Q2 earnings of $0.99 and significantly exceeding consensus estimates of 60 cents per share as operational efficiency’s drove margin growth.

The company’s 30.8% Q3 revenue growth reached $1.04 billion and exceeded Street estimates of $904 million. The rise was attributed to its diversified product offerings and robust demand for railcar products.

The groups underlying profitability measured by adjusted EBITDA came in at $96.9 million, greatly outperforming the markets expectations for around $80 million.

Dividend Boost

Investor confidence was further boosted by the board’s 11% dividend increase in its quarterly dividend of $0.30 per share, bringing the stock’s annualized dividend yield to 2.82% based on today’s inflated closing price.

Adding to its impressive run, Greenbrier’s railcar backlog stands at 23,400 units that have an estimated value of $2.9 billion at the close of the quarter. Excluding orders received at the end of the quarter and a railcar conversion backlog of 1,000 units, the company’s portfolio promises sustained revenue generation in the upcoming quarters.

The future looks bright for Greenbrier as it expects to deliver between 25,000 and 26,000 units in FY23, a projection inclusive of around 1,000 units from Greenbrier-Maxion, its plant in Brazil. The company has also projected its FY2023 revenues in the range of $3.8 billion to $3.9 billion, an upbeat forecast that paints a picture of continuous growth.

Greenbrier’s FY23 outlook and updates are promising. The company’s significant performance beats both on the top and bottom lines, and its raised guidance makes GBX an attractive buy for investors. The focus on operational execution, the promise of a rational replacement cycle for railcar demand, and steady orders positions Greenbrier favourably for the long term.

Greenbrier’s robust results in Q3 were highlighted by an unexpected surge in manufacturing gross margin, improving 260 basis points sequentially. The company reported orders for 4,600 railcars, steady sequentially, and has received additional orders for 7,900 railcars post quarter-end.

Three-Day Options Spree

Fintel’s options analysis highlighted the usual spike in options long volume that occurred in the lead up to the results. As shown in the option’s premium analysis for GBX, we can see that $39 million worth of net long premium was purchased on Tuesday, with more than $50 million bought in the three days leading up to Thursday’s results.

The options trades were first spotted on Fintel’s Daily Brief which highlights unusual activity.

Analyst Review

Wells Fargo analyst Allison Poliniak-Cusic came away from the result with increased confidence in FY24 earnings expectations. The analyst highlighted that the cycle has not yet finished for the rail sector even with the challenging macroeconomic conditions and rail volumes.

Wells Fargo maintained its ‘overweight’ call on the stock and lifted its target price to $48 from $37 a share.

Fintel’s consensus target price of $38.35 suggests the market thinks shares could rise a further 20% over the next year. We think this target price could drift higher in the coming weeks as analysts’ update forecasts and modelling on the stock.

Greenbrier remains poised to further capitalise on the ongoing industry recovery and deliver more value to its shareholders.

The strong operational and financial results, together with increased FY23 guidance, reflect positively on Greenbrier’s ability to weather industry challenges, realise operational efficiencies, and deliver substantial shareholder value.

In a climate of improving market conditions and stronger demand for railcars, Greenbrier’s continued margin expansion and focus on delivering consistent performance make it a strong player in the transportation manufacturing industry.

This article originally appeared on Fintel