Greenbrier Companies CRC Stock Pitch Competition Spring 2015

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


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


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


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


Demand Across Rail Car Type Differences in Tank Cars

Fleet Breakdown

Industry Fleet Overview

Source: Greenbrier Annual Report

8Overview & Thesis

Industry Dynamics


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


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


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)


Packing Group 3 (all other flammable items)


Current Phasing Schedule

Changes are on the Horizon

Sources: Greenbrier Investor Report, 10k, American Association of Railcars

11Overview & Thesis

Industry Dynamics


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


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


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


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


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


Perpetuity Growth Method Calculation of WACC

EBITDA Exit Multiple Method Comparables Analysis

Valuation

Sources: Greenbrier 10K, Bloomberg

17Overview & Thesis

Industry Dynamics


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


Appendix

19Overview & Thesis

Industry Dynamics


Income Statement

20Overview & Thesis

Industry Dynamics


Balance Sheet

21Overview & Thesis

Industry Dynamics


Statement of Cash Flows

22Overview & Thesis

Industry Dynamics


Discounted Cash Flow Analysis

23Overview & Thesis

Industry Dynamics


Comparable Companies Analysis

24Overview & Thesis

Industry Dynamics


Locations

Source; Greenbrier Investor Report