Greenbrier Companies Inc (NYSE:GBX) announced per a 13D that billionaire Carl Icahn sold off over 65% of his stake, dropping his ownership of the rail car company from 9.9% to 3.4%. The selloff comes after Greenbrier rejected Icahn’s latest offer to pay $22 per share for the company, compared to its $15.60 trading range. Shares fell around 15% last week on the news that Greenbrier rejected the offer (check out Carl Icahn's newest stock picks).
Icahn had offered to merge American Railcar – which he owns over 50% of – with Greenbrier. Icahn’s previous 13D filing announced an offer to buy Greenbrier for $20 per share, but the activist investor upped it to $22 after his initial bid was declined. Merger talks have been on-and-off for about five years now, with Icahn dropping his last major effort in 2008. Raymond James recently downgraded Greenbrier following the announcement that Icahn had decided to sell off his stake.
As a whole, the railcar industry should bode well in the interim as a rise in coal consumption provides a supportive tailwind. This should help Greenbrier as well, despite Icahn’s exit. Greenbrier trades as one of the cheapest rail stocks in the industry on a P/E (9x) and P/CF (4x) basis. One other positive is the 'growth at a reasonable price' opportunity the company's stock presents. Greenbrier trades at a PEG of 0.7 given its 12.5% 5-year expected earnings growth rate.
Comparing Greenbrier to Icahn’s American Railcar, Greenbrier is much cheaper. Both companies trade with a market cap between $425-$675 million, but American Railcar sports a 1x sales multiple, while Greenbrier is at a mere 0.3x. Greenbrier has a 3.2 beta but is down over 35% year to date. Assuming Greenbrier trades in line with American Railcar on a P/S basis, the stock could triple in value as long run growth stabilizes.
But what about the company's competitors?
FreightCar America, Inc. (NASDAQ:RAIL) and Westinghouse Air Brake Technologies Corp (NYSE:WAB) are two of Greenbrier’s key competitors. FreightCar trades at a forward P/E of 19x and Westinghouse is at 15x year-ahead EPS, compared to Greenbrier’s 7x. FreightCar focuses on aluminum-bodied railcars and has the lowest return on equity (13.7%) of the bunch. Westinghouse, meanwhile, trades on the high-end at 18x trailing earnings and 15x cash flow. FreightCar has billionaire Jim Simons as one of its big name investors (check out Jim Simons' top bets).
Oshkosh Corporation (NYSE:OSK) is another company that Icahn is looking to dump. Oshkosh appears cheap on a P/E basis at 12x earnings, compared to Terex (23x), but we believe investors might be able to find better value in Icahn’s other major auto manufacturer play: Navistar. Billionaire Ken Griffin was backing Icahn last quarter with a 150% increase in his stake (check out Ken Griffin's newest picks).
With Icahn dumping a significant portion of Oshkosh and Greenbrier, there are rumors that he's thinking of getting into Hewlett-Packard Company (NYSE:HPQ). The computer company is up 15% over the past month on the back of speculation over Icahn's interest. For the time being, we believe that Dell might be a better tech investment than HP, given the latter’s near-stagnant 5-year EPS growth. Interestingly, Billionaire Ray Dalio - founder of Bridgewater Associates - did up his stake in HP almost 20% last quarter (check out Ray Dalio's key bets).
To recap: Greenbrier is still a solid bet despite Icahn’s exit. The downward pressure over the last week might give investors a solid buying opportunity, and bulls should look toward the company's solid expected EPS growth and attractive sales valuation. For more of Carl Icahn, check out some recent coverage below: