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Wabtec Strong on Revenues Amid High Operating Expenses

Zacks Equity Research
·3 min read

We recently issued an updated report on Westinghouse Air Brake Technologies Corporation WAB, which operates as Wabtec. Factors like escalating operating expenses and high-debt levels are detrimental to the company’s growth prospects. However, the expanded portfolio due to its merger with GE Transportation is encouraging.

In February 2019, Wabtec completed the merger with GE Transportation, a business unit of GE.The combined company has an expanded product portfolio and a larger customer base. Inclusion of GE Transportation products helped the company's sales increasein excess of 100% in the second quarter of 2019. Apart from this, Wabtec acquired ELCO Locomotives. It increased Wabtec’s freight services capabilities.

Westinghouse Air Brake Technologies Corporation Price

 

Westinghouse Air Brake Technologies Corporation Price
Westinghouse Air Brake Technologies Corporation Price

Westinghouse Air Brake Technologies Corporation price | Westinghouse Air Brake Technologies Corporation Quote

 

Wabtec anticipates sales to be $8.7 billion in 2020, higher than the 2019 figure due to the inclusion of GE Transportation products. Adjusted EBITDA is estimated at $1.6 billion. Additionally, adjusted earnings are expected between $4.5 and $4.8 per share.

Wabtec’s efforts to reward shareholders are impressive. In February, the company’s board authorized a buyback program worth up to $500 million.

However, high operating expenses and the consequent deterioration in operating ratio (operating expenses as a percentage of revenues) are headwinds. Total operating expenses surged more than 100% to $1.6 billion in 2019, primarily due to 84% rise in selling, general and administrative expense. Operating ratio deteriorated to 19.7% from 17.4% in 2018. Lower the value of the metric the better.

Again, sharp drop in revenues due to the coronavirus pandemic is likely to hurt Wabtec’s first-quarter results.

Additionally, Wabtec's high debt levels are worrisome. Long-term debt as of Dec 31, 2019, was $4.33 billion compared with $3.79 billion at 2018 end.

Zacks Rank and Stocks to consider

Currently, Wabtec carry a Zacks Rank #3 (Hold).

Some better-ranked stocks to consider in the Zacks Transportation sector are GATX Corporation GATX, Spirit Airlines, Inc. SAVE and Höegh LNG Partners LP HMLP. GATX sports a Zacks Rank #1 (Strong Buy), whereas Spirit and Höegh LNG carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term (three to five years) expected earnings per share growth rate for GATX, Spirit and Höegh LNG is pegged at 15%, 12% and 8.5%, respectively.

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Spirit Airlines, Inc. (SAVE) : Free Stock Analysis Report
 
Westinghouse Air Brake Technologies Corporation (WAB) : Free Stock Analysis Report
 
GATX Corporation (GATX) : Free Stock Analysis Report
 
Hoegh LNG Partners LP (HMLP) : Free Stock Analysis Report
 
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Zacks Investment Research