Insider buying is slowing down, for sure. The number of purchases and dollars spent last week were noticeably smaller than the previous week. While quantity was lacking, quality was not, at least the way we measure quality.
Seven figure purchases are one of our measuring sticks as is a previous track record of “getting it right”. Both, together, is quality in our view. That’s exactly what we have this week. The Greenbrier Companies, Inc. (GBX) Chief Executive Officer (CEO) William A. Furman parted with $2.19 million to add 50,000 shares of GBX to his portfolio at $43.85. (1) That’s a little more than one-year’s pay for the CEO. (2) Investing 100% of a year’s salary is another checkmark on our quality scorecard.
The Greenbrier Companies is a leading international supplier of equipment and services to global freight transportation markets. Greenbrier designs, builds, and markets freight railcars and marine barges. They are a leading provider of freight railcar wheel services, parts, repair, refurbishment, and retrofitting services. Greenbrier offers railcar management, regulatory compliance services, and leasing services to railroads and related transportation industries in North America. Greenbrier owns a lease fleet of 8,700 railcars and performs management services for 445,000 railcars.
Furman has a profitable history of buying and selling the rail company’s shares. He didn’t start moving big chunks of GBX until April 2006, when he started selling at $40.22 and sold millions of dollars-worth of the railroad stock in the $40s until May 2006. The CEO went quiet on Greenbrier until the subprime crisis, then he loaded up buying thousands and thousands of shares for the next three-years, from $4.89 all the way to $25.49. In 2015, he turned seller again, unloading $10’s of millions from $32.19 to $49.55.
The CEO returned to the buyer’s window post-COVID-19 lows to buy 100,000 shares at $16.52 in May 2020, another 50,000 shares at $43.57 in February 2021 and then again last week, as mentioned up top. His two most recent buys are fascinating because $40s seemed to trigger selling for Furman from 2006 all the way to 2017. Now he’s buying in the $40s.
Furman’s trading history alone in cause enough to consider adding GBX. Let’s examine Wall Street’s earnings and sales estimate for 2022 to see if a fundamental case can be made to consider owning Greenbrier as well.
Analysts forecast consensus earnings per share (EPS) of $2.41 next year with sales slated to grow 41.9% to $2.58 billion from $1.82 billion in 2021. (3) The average price to earnings ratio (P/E) for the railroad peer group is 23.76. If Greenbrier hits the street’s 2022 EPS target and trades at the current average P/E, shares price out at $57.26. That’s approximately 22% higher than where it trades as we type, $47.76.
Meanwhile, the typical competitor is valued at 1.71 times revenue. Once again, GBX achieves 2022 revenue expectations and trades at the present industry price to sales ratio (P/S) of 1.71, the stock would zoom to $125.53. Right now, Greenbrier is valued at 0.74 times revenue. If the valuation remains constant and the railroad company makes 2022’s topline forecast, then shares would be worth $54.32 or 16.2% higher than today’s price.
Outlook: CEO William A. Furman’s track record of buying and selling The Greenbrier Companies, Inc. (GBX) has made the executive millions of dollars. He could do it again if the company hits Wall Street’s sales and earnings predictions and trades at the average industry P/E or its current P/S ratio. Add in a current dividend yield of 2.31%, and Furman could see potential total returns between 18.5% to 24.31% in the next 12 to 18 months.
1 – https://www.secform4.com/insider-trading/937952.htm
2 – https://finance.yahoo.com/quote/GBX/profile?p=GBX
3 – https://finance.yahoo.com/quote/GBX/analysis?p=GBX