Wabtec Rises 7% Today

Wabtec (WAB) gained back a big chunk of what it lost on Friday, though not all of it. Shares of WAB closed today at $105.10 for a gain of 7.02%.

At Barron’s, Teresa Rivas notes that some analysts are still behind the deal:

Shares of Wabtec (WAB) took a hit at the end of last week, hurt by bearish analyst commentary surrounding its deal to buy General Electric’s (GE) transportation unit. However, after the close of regular trading, Wabtec reaffirmed financial targets for the GE transportation deal, saying it expects adjusted earnings before interest, taxes, depreciation and amortization to increase between $900 million and $1 billion, and both stocks are trading higher Monday morning.

Wabtec did say that a minor adjustment to account for GE Transportation’s financials would lead to a $63 million decrease in the consolidated net revenue and Ebit expected from the combined company in 2019, but wouldn’t have any significant effect in future years, and doesn’t affect Wabtec’s future reported consolidated cash from operations. The company expects the transaction to close in the first quarter of next year. “Upon completion of the merger, we believe we will be poised to drive strong growth in 2019 and beyond and well-positioned to serve customers as industry demand continues to improve.”

Analyst were out defending the deal. Wells Fargo’s Allison Poliniak-Cusic reiterated an Outperform rating and $120 price target on Wabtec, writing GE’s financial troubles are no secret at this point, and Wabtec is “absorbing some of that pain,” but the transaction ultimately still makes sense.

She writes that the variance in free cash flow and leverage is the main sticking point with bears. While she agrees that debt is an issue, Poliniak-Cusic believes that Wabtec’s limited cash outlay and easy access to low-interest-rate financing means that it still makes strategic sense for the company. Margin “choppiness” may occur, but that ultimately Wabetc will benefit from the merger. Moreover, the demand side of the equation for freight markets has improved a good deal since the deal was first announced in May. “As such, it is clear to us that the trough has been reached most notably on locomotive orders and deliveries giving us increased confidence in 2019 estimates expectations,” she concludes. “When the transaction is complete, we believe Wabtec will be well-positioned to benefit from the volume growth in addition to the captured content on delivered locomotives going forward.”

William Blair’s Nicholas Heymann is also still bullish on Wabtec, reiterating an Outperform rating on the shares today. He writes that he hasn’t moved his adjusted earnings per share estimates for the stock going out to 2020, although the company has also noted that North American freight rail business has been performing above expectations of late.

Posted by on September 17th, 2018 at 4:25 pm


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