We have issued an updated research report on Westinghouse Air Brake Technologies Corporation WAB on Aug 28.
Despite high-operating expenses, shares of the company have fared well in the past six months. The stock has rallied 35.3% compared with the industry’s rise of 16.8%.
Reasons for Robust Price Performance
Wabtec has an impressive earnings history, surpassing the Zacks Consensus Estimate in three of the trailing four quarters. The average earnings beat is 2.3%.
In July, this Wilmerding, PA-based company posted better-than-expected earnings per share (EPS) and revenues in the second quarter of 2018. In the quarter, earnings and revenues increased year over year, courtesy of impressive performance of the freight segment. Freight revenues improved 20% year over year to $412.26 million, primarily owing to favorable foreign currency exchange rates, organic sales growth and buyouts.
Furthermore, strong first-half performance propelled Wabtec to raise guidance for 2018 earnings and revenues. In fact, the company projects EPS (excluding estimated costs of the proposed merger with GE Transportation and certain other items) of $3.85, higher than the previous guidance of $3.80. Additionally, revenues are anticipated to be approximately $4.2 billion, up from the previous expectation of $4.1 billion. The company also expects operating margin (income from operations as a percentage of net sales) of 13.5%, higher than 13.1% in 2017.
Moreover, we are positive about Wabtec’s merger-related deal with GE Transportation. The combined entity will generate $8 billion in total revenues and double-digit EPS growth, annually. The company’s constant efforts to expand operations through strategic acquisitions sound impressive as well. During the first quarter of 2018, Wabtec acquired Annax and Lynxrail and it hopes to reap the benefits of these buyouts throughout 2018. The company expects to generate additional synergies from the consolidation of Faiveley Transport in 2017, which has strengthened Wabtec’s foothold in the European and Asia Pacific transit markets.
Other Favorable Factors
Wabtec has a long-term debt-equity ratio of 64.6%, which compares favorably with the industry average of more than 100%.
The company’s impressive Momentum Score of B indicates short-term attractiveness.
In the light of these positives, we believe that Wabtec should be retained by investors for now. The Zacks Rank #3 (Hold) carried by the stock seems to suggest the same.
Stocks to Consider
A few better-ranked stocks in the broader Transportation Sector are SkyWest, Inc. SKYW, CSX Corporation CSX and Old Dominion Freight Line, Inc. ODFL. While Old Dominion carries a Zacks Rank #2 (Buy), SkyWest and CSX Corporation sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Shares of SkyWest, CSX Corporation and Old Dominion have gained 17.1%, 38% and 8.3% in the past six months, respectively.
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