He's going to have CMI's Ceo on tonight. me thinks he will finally pump WBC.
Buying Truck Bet on Weakness Jim Cramer 02/02/11 - 11:25 AM EST
As I indicated in yesterday's late-afternoon Alert, I was looking to buy more Wabco (WBC:NYSE) on any weakness. The stock is down this morning, and after you have received this Alert, I'll buy 100 shares at $56.48.
The company reports next week (Feb. 11), and after the positive preannouncement last month, the quarter should hold few surprises. Also, there is continued evidence of a truck market recovery in emerging markets and Europe. Recall in December that the company increased its fourth-quarter and full-year 2010 earnings and revenue outlook due to better demand out of Europe and Asia (mainly China) and indicated that its backlog and volumes were higher than plan. Fourth- quarter sales will be $623 million to $633 million EPS are expected at $0.88 to $0.93.
It was Paccar's (PCAR:Nasdaq) comments yesterday on its fourth-quarter conference call related to Europe that give me reason to believe that Europe is actually stronger than expected, which could mean a stronger quarter (at high end of the guidance) for Wabco and that 2011 forecasts will be more optimistic than usual (likely higher revenue and typical conservative margins). Specifically, Paccar raised European truck production to 25% in 2011 -- Wabco is using 15% in its estimates -- due to stronger truck registrations (up 19% quarter over quarter), orders growth of 87% quarter over quarter and better used prices (up 20% from the lows).
I am very bullish on the truck cycle (replacement demand, emission standard changes and safety standard changes), and Wabco is one of just three companies in the industry that provides critical technology in brakes and transmissions and will benefit from the rise in content per vehicle as governments and corporations around the world focus on improving safety standards. Wabco also has excellent market share and exposure in international markets (30% of total profits) with an 85% share in India, the top share in China and tied for first in Russia and Brazil. International markets are the fastest-growing ones, but they also have the lowest content per car, so Wabco is in excellent shape to see better demand and stronger pricing. When combined with its restructuring program (which will yield $80 million in savings annually for the next three years), there is positive operating leverage and earnings power, as witnessed this morning with the higher guidance.
The stock trades at 14x 2011 earnings but just 9.6x normalized earnings of $5.50 to $6.00 a share. I'll continue to build this position in the portfolio with a target of $65 long term.
After my trade, I will own 1,200 shares of Wabco, for 1.91% of the portfolio.
WBC raised guidance....these guys are going to blow out their #'s to the upside too!
WABCO Holdings raises Q4 2010 and FY10 guidance above consensus .... Co expects Q4 2010 sales of $623-633 mln vs consensus of $604 mln, up from $595-615 mln previously; Co raised its Q4 2010 EPS guidance to range from $0.88-0.93, vs consensus of $0.71, and up from $0.62-0.72 previously. WABCO also raised its FY10 revenue guidance of $2.17-2.18 bln vs consensus of $2.16 bln consensus, up from $2,14-2.16 bln previously; Co raised its FY10 EPS guidance to $2.73-2.78 vs consensus of $2.57, up from $2.47-2.57 previously. "Our business is developing even more favorably than we expected two months ago as severe winter conditions in Europe boost aftermarket sales and additional customer demand in Europe and China further grows our fourth quarter revenues... As we prepare to enter 2011, our expanding backlog means keeping factories running during year-end holidays, which in turn will further increase volume productivity. We also see more favorable impacts from year-end activities in Q4 2010 than previously expected."