Ticker: PETM Cleveland Research Company Stock Pitch Competition 2015 Ticker: GBX
Kyle Gardner | Jimmy Kruse | Ryan Myers | Evan Yoo
Overview & Thesis 3
Industry Dynamics 6
Key Drivers 8
Valuation
Final Thoughts
Appendix
15
17
18
2
3Overview & Thesis
Industry Dynamics
Key Drivers Valuation Final Thoughts Appendix
Investment Thesis
Greenbrier is well positioned to take full advantage of tailwinds
in their industry
Greenbrier will continue to turn their backlog into
revenue at an increasing rate
Existing demand for train cars will continue to grow
due to pending tank car safety legislation
Greenbrier’s diversified business model will allow for
sustained EPS growth and drive the share price upwards
We recommend Greenbrier as a Buy with a 12 month price
target of $92.00, a 45.3% upside from the current share price
4Overview & Thesis
Industry Dynamics
Key Drivers Valuation Final Thoughts Appendix
Description & Operations
Company Overview
Sources: Greenbrier website, Bloomberg
Headquartered in Lake Oswego, Oregon
Design, manufacture, and repair railroad
freight cars, equipment and marine barges
Operations in North America, Europe, and
South America
Leading manufacturer of railcars in North
America and Europe
Leading domestic manufacturer of ocean
going barges
Recently formed a 50/50 venture with
Watco Companies LLC to create GBW Railcar
Services LLC
38 repair sites in North America
14 are certified to recondition tank cars, 13
domestically
Owned fleet of 8,500 railcars
Managed fleet of 238,000 railcars
Recently transitioned to an asset light model
Manufacture rail cars, sell the contract to lease
them to another company, collect management fees
Manufacturing
Leasing and ServicesWheels, Repair, and Parts
5Overview & Thesis
Industry Dynamics
Key Drivers Valuation Final Thoughts Appendix
Create and maintain a flexible and low-cost
manufacturing footprint
Diversify the manufacturing business by
railcar type and introduce innovative products
Develop an increasingly robust leasing
platform with an “asset-light” model, driving
more business
Threefold Strategy Manufacturing Segment
Leasing & Services Segment Wheels, Repair, and Parts Segment
Management’s Forward Plan
Sources: 2014 Greenbrier Annual Report
Plant Upgrades
Will be able to double current tank car
production capacity in North America in 2015
Goal to grow to $1 billion annually by 2019
Segment currently brings in $83 million
Created a 50/50 joint venture with Watco
Companies in 2014, named GBW Railcar
Services
$83,419
$71,462
$71,887 $69,323
$72,280
$65,000
$70,000
$75,000
$80,000
$85,000
20142013201220112010
Leasing & Service Revenue
6Overview & Thesis
Industry Dynamics
Key Drivers Valuation Final Thoughts Appendix
Rail transportation volume continues to
grow
Shale oil and gas revolution is driving new
regulations
Rail ton miles are increasing
Rail car deliveries are increasing
Trends Freight Traffic Growth
US Market Share Rail Car Deliveries
Industry Overview
Sources: Greenbrier Annual Report, Bloomberg, IBIS
7Overview & Thesis
Industry Dynamics
Key Drivers Valuation Final Thoughts Appendix
Demand Across Rail Car Type Differences in Tank Cars
Fleet Breakdown
Industry Fleet Overview
Source: Greenbrier Annual Report
8Overview & Thesis
Industry Dynamics
Key Drivers Valuation Final Thoughts Appendix
At FYE 2014 backlog was more than double
previous company record (31,500 units)
Since September 2014 Greenbrier has
received orders for 24,200 rail cars valued at
$2.33 billion
Deliveries on these orders will extend beyond
2019
Total future value of backlog between 2012-2014
is estimated to be $6.05 billion
Regulations requiring retrofitting and
replacement of current tank cars coupled with
an aging fleet will drive orders
Backlog will continue to increase at an increasing
rate
Backlog Will Continue to Grow Historical Backlog
Future Revenue Value of Backlog (In Millions)
Backlog Size Matters
Source: Greenbrier Annual Report, Greenbrier 10k
$87
$79 $80
$112
$106 $106
$-
$20
$40
$60
$80
$100
$120
$-
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
Aug. 09 Aug. 10 Aug. 11 Aug. 12 Aug. 13 Aug. 14
Average Sales P
rice/U
nit($ in T
housands)Bac
klog
Val
ue($
in M
illio
ns)
9Overview & Thesis
Industry Dynamics
Key Drivers Valuation Final Thoughts Appendix
N. American Capacity to Double in 2015 Making Efficient Investments
Deliveries will Continue Record Highs Historical and Projected Deliveries
Increased Capacity Will Turn Backlog into Revenue
Sources: Greenbrier Investor Report, Annual Report, Bloomberg
Added two new rail car manufacturing lines
to an existing plant in Mexico
Transitioned a leased plant to a wholly-
owned plant in preparation to manufacture the
“Tank Car of the Future”
Set a record high for deliveries in 2014 with
16,200
Management is forecasting deliveries of
21,500 in 2015, another record
Increasing manufacturing capacity will allow
Greenbrier to continue delivering more units
each year
2014 ROIC and ROE
10Overview & Thesis
Industry Dynamics
Key Drivers Valuation Final Thoughts Appendix
Shale oil and gas revolution has led to
increased quantities of oil and gas being shipped
by rail
Derailments contribute to social pressure
for increased legislation
US and Canadian governments expected to
introduce new legislation in May mandating new
safety features on tank cars
85% of 92,000 existing tank cars don’t meet
current standards
New industry legislation will impose harsher
standards
Current Tank Car Model InsufficientCurrent DOT Retrofit Requirements (For DOT-111
and CPC-1232 cars)
Packing Group 1 (mostly crude)
Out of service by Oct. 1, 2017
Packing Group 2 (some crude, all Ethanol)
Out of service by Oct. 1, 2018
Packing Group 3 (all other flammable items)
Out of service by Oct. 1, 2020
Current Phasing Schedule
Changes are on the Horizon
Sources: Greenbrier Investor Report, 10k, American Association of Railcars
11Overview & Thesis
Industry Dynamics
Key Drivers Valuation Final Thoughts Appendix
Legislative Prospects Head and Shoulders Above the Rest
Old Car, New Tricks Safer for Everyone
“Tank Car of the Future” Poised for Success
Sources: Greenbrier Investor Presentation, Greenbrier Annual Report
Management expects the “Tank Car of the
Future” to be the mandated model as the new
standard by the US and Canadian governments
8x safer than current standard, 2x safer than the
next safest proposed tank car
Greenbrier recently entered a 50/50 joint
venture with Watco to create North America’s
largest independent railcar repair network
Estimated that retrofits will cost between
$26,000-$33,000 per car
12Overview & Thesis
Industry Dynamics
Key Drivers Valuation Final Thoughts Appendix
Manufacturing Revenue Breakdown Yearly Revenue and Gross Margin %
Repair Revenue Breakdown Revenue Growing Across all Segments
Diversified Business Model Creates a One-Two Profit Punch
Sources: 2014 Greenbrier Investor Presentation. Greenbrier 10k
Provide maintenance and repairs on cars
sold
Provide maintenance and repairs on cars
leased
38 sites in N. America for repair, 14 certified
for tank car refurbishment
Two sources
Build-to-Order sales
Underwriting and Syndication
13Overview & Thesis
Industry Dynamics
Key Drivers Valuation Final Thoughts Appendix
Build custom railcars for customers to lease
Temporarily hold assets
Sell contracts to lease these cars to other
companies
Recognize revenue in Manufacturing segment
Receive management fees, provide
maintenance on the cars to generate further
revenue
Own 8,600 railcars, manage 246,000
Syndication Model Quarterly Gross Margins
Private Ownership Model a Growing Trend
“Asset Light” Leasing Model
Sources: Greenbrier Investor Report
14Overview & Thesis
Industry Dynamics
Key Drivers Valuation Final Thoughts Appendix
Strengths Weaknesses
Opportunities Threats
SWOT Analysis
Sources: Greenbrier Annual Report
Massive backlog
Increasing capacity
Structure of business model
“Tank Car of the Future”
Growth of rail industry
Cyclical business
Large percentage of unionized
manufacturing employees
Current amount of capital expenditure
requirements
“Asset Light” leasing segment model
GBW joint venture with Watco Companies
Changing regulatory landscape
Aging rail fleet
Pipeline headwinds including political
gridlock and environmental groups
Concern regarding lower oil prices hurting
shale drilling and decreasing rail traffic
Oil pipelines
Delay of tank car safety regulations due to
political gridlock
Raw material shortages from suppliers
15Overview & Thesis
Industry Dynamics
Key Drivers Valuation Final Thoughts Appendix
Comparables Analysis Football Field
DCF (Perpetuity & EBITDA Methods) Sensitized Valuations
Valuation
Sources: Greenbrier 10K, Bloomberg
Enterprise Value/EBITDA was used to
derive an implied share price
Implied share price range of $78.11-
$174.38, a 23.3%- 175.3% premium
respectively
WACC of 11% was used
Perpetuity growth was assumed to occur at
2.5%
EBITDA Exit Multiple was calculated to be
5.6x
16Overview & Thesis
Industry Dynamics
Key Drivers Valuation Final Thoughts Appendix
Perpetuity Growth Method Calculation of WACC
EBITDA Exit Multiple Method Comparables Analysis
Valuation
Sources: Greenbrier 10K, Bloomberg
17Overview & Thesis
Industry Dynamics
Key Drivers Valuation Final Thoughts Appendix
Final Thoughts
Greenbrier will continue to turn their backlog into revenue at an
increasing rate
Backlog of $5 billion will continue to grow
New production lines will increase deliveries
Existing demand for train cars will continue to grow due to
pending tank car safety legislation
“Tank Car of the Future” will be in high demand
Joint venture with Watco will generate refurbishing revenue
Greenbrier’s diversified business model will allow for sustained
EPS growth and drive the share price upwards
“Asset light” leasing model will increase margins
Services provided throughout the life of a car extend profitability
18Overview & Thesis
Industry Dynamics
Key Drivers Valuation Final Thoughts Appendix
Appendix
19Overview & Thesis
Industry Dynamics
Key Drivers Valuation Final Thoughts Appendix
Income Statement
20Overview & Thesis
Industry Dynamics
Key Drivers Valuation Final Thoughts Appendix
Balance Sheet
21Overview & Thesis
Industry Dynamics
Key Drivers Valuation Final Thoughts Appendix
Statement of Cash Flows
22Overview & Thesis
Industry Dynamics
Key Drivers Valuation Final Thoughts Appendix
Discounted Cash Flow Analysis
23Overview & Thesis
Industry Dynamics
Key Drivers Valuation Final Thoughts Appendix
Comparable Companies Analysis
24Overview & Thesis
Industry Dynamics
Key Drivers Valuation Final Thoughts Appendix
Locations
Source; Greenbrier Investor Report