Greenbrier: Don't Buy It For Revenue Growth—Buy It For Margin

Greenbrier Companies GBX isn’t a stock you buy for growth because it isn’t growing.

You buy this company because of its strategic business shift and industry position, which has left it a more diversified business with a prominent and growing recurring revenue stream. The shift is from a predominantly manufacturing business to one that includes full services for the railcar lifespan and leasing options.

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The leasing business is critical to the outlook, providing visibility, cash flow, and higher margins through long-term contracts. Greenbrier naturally fits this transportation market because it can quickly ramp up or reduce the production of leasable cars to meet the need.

The FQ2 2025 results on the top and bottom lines were weaker than expected. Still, they highlight the company’s shift, with revenue falling more than expected and earnings growing. The company’s adjusted EPS grew by 65% to $1.69 compared to $1.03 in the prior year, and cash flow is also solid.

Cash flow is down slightly compared to the preceding year but sufficient to sustain balance sheet health and capital returns. The capital return is robust and another critical factor for this investment. 

Greenbrier’s Dividend Is Safely Growing

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Greenbrier’s capital return is primarily dividends. The yield is nearly 2.9% in early April, and a safe payout based on the metrics. The company is expected to pay out only 25% of the 2025 earnings outlook in the following 12 months, which is stable despite the revenue guidance reduction.

The company increased its forecast for margin by 100 basis points, offsetting the forecasted top-line weakness. Management appears to be taking a conservative stance, possibly underestimating the strength of its leasing segment. Greenbrier says supply remains tight and expects this segment to remain strong. 

Revenue guidance was reduced because of a business rationalization. The company will shutter a factory in Romania, focusing its investment in other facilities and effectively reducing its capacity in the EU. The move will impact revenue as soon as the current quarter but will positively impact the operating margin and improve dividend distribution growth sustainability.

Regarding tariffs, they are not a direct threat because of USMCA-compliant manufacturing but an indirect threat that could impact margins. 

Greenbrier’s balance sheet is strong and capable of withstanding market downturns, which it is not experiencing. The highlights from Q2 include increased cash, receivables, and current and total assets, partially offset by increased liabilities.

The net result is an 11% increase in shareholder equity and persistently low leverage, with long-term debt less than 1x. 

Greenbrier Is a Deep Value in the Eyes of Analysts

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While analyst coverage of Greenbrier is not robust, they are bullish.

The two analysts tracked by MarketBeat issued coverage within the last five months, rating the stock as a Hold with the potential for a 45% upside at the consensus.

The critical takeaway is that the low price target offers a solid 40% upside that may be unlocked later in 2025 or early 2026. Institutional activity, on the other hand, is more robust—and also bullish.

Institutions own more than 90% of the stock, bought on balance for seven consecutive quarters, and ramped their activity to a multi-year high in Q1 as the share price declined. 

The price action in early CQ2 is not impressive but may be at the bottom of its decline. The market has returned to levels that align with actin in 2022, 2023, and 2024, but there is risk. 

GBX stock price is also below critical resistance targets and moving averages, which could keep it under pressure until more bullish news is released. 

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The article "Greenbrier: Don't Buy It For Revenue Growth—Buy It For Margin" first appeared on MarketBeat.