It looks like Carl Icahn was on to something. Last year, he
tried to acquire the
The Greenbrier Companies (NYSE:
for $22 a share, anoffer that was subsequently rebuffed by
, I cautioned that it was unwise to follow Icahn into this
crowdedstock because once he loses interest (as he often does when
pursuing his prey),shares tend to wilt.
And that's precisely what happened with Greenbrier.
Yet we can add a fresh twist to the much-ballyhooed "Icahn
effect." The legendary investor may be known for too many head
fakes, but after he walks away, then real value may emerge. Indeed,
it now looks as if Icahn was on the right track in his ardor for
this stock, as just-released quarterly results show. As it turns
out, Greenbrier and another transportation firm,
Wabash National (NYSE:
. may be shaping up to be top gainers in 2013.
Replacing the fleets
Greenbrier, a leading provider of railroad cars, and Wabash, a top
provider of truck trailers that ply U.S. highways, share several
First, they've both been suffering from a lean stretch as key
customers have held off upgrading their equipment ever since the
GreatRecession hit in 2008. That long cycle of under-investment has
led to aging fleets for railcars and truck trailers. Second, and
more important, both of these firms now appear poised for a solid
upgrade cycle. Greenbrier, for example, had abacklog of 10,700
railcars on its order books as of the end of August. That figure
dipped to 9,700 as of the end of November, but in subsequent weeks,
Greenbrier snagged orders for 2,800 more railcars, pushing current
backlog up above 12,000 units.
The challenge now for management is to run this company with a
firmer grip on costs. Greenbrier has been dogged by accusations of
bloated costs, which was a key factor behind Icahn's attempts to
acquire the company (and presumably cut costs soon thereafter).
Greenbrier has gotten the message. "Our four key focus areas for
2013 are: enhancing operating margins, expanding product and
service offerings, increasingfree cash flow , and
businessdiversification and growth," noted company president
William Furman in a Jan. 9 press release. According to company
guidance, quarterly results should strengthen as the currentfiscal
Management at Wabash National is pursuing a similar business
restructuring, which will likely be augmented by a cyclical demand
rebound as we head toward mid-decade.
I touched on this transformation
in August 2012. The company went on to deliver sharply-improved
quarterly results two months later. As a result, shares have posted
a solid rebound.
Thanks to streamlining efforts and anacquisition that brought
exposure to the more lucrative refrigerated trailermarket , Wabash
has been able to deliver a steady expansion in gross margins.
Wabash's fast-improvinggross margin profile
And firming margins are directly feeding into a growingbottom
line : Wabash'searnings likely rose from 24 cents a share in 2011
to 95 cents a share in 2012. Analysts say earnings could reach
$1.30 per share in 2013. A firmingeconomy into mid-decade could
help pushearnings per share (
) even higher by 2014 and 2015. Again, this stock still trades for
less than $10 a share.
In a similar vein, Greenbrier also appears to represent solid
value, trading at less than eight times projected 2013 profits. And
a firming economy, coupled with the company's looming streamlining,
should pushEPS higher into mid-decade as well.
Risks to Consider:
These twostocks have a high degree of economic sensitivity, so
if the U.S. economy stumbles anew in 2013, then the risingprofit
forecasts may prove hard to reach.
Action to Take -->
In his ill-fated pursuit of Greenbrier, Icahn may have unwittingly
tipped investors off to a key theme. Transportation equipment
providers, many of which have suffered from years of subpar demand,
may be on the cusp of a robust cyclical upturn. And sector share
prices haven't begun to reflect the better days ahead.
-- David Sterman
David Sterman does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC does not
hold positions in any securities mentioned in this article.