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Wabtec (WAB) Down 3.1% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Westinghouse Air Brake Technologies (WAB). Shares have lost about 3.1% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Wabtec due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Wabtec’s Q1 Earnings Beat Estimates

Wabtec's earnings (excluding 33 cents from non-recurring items) of $1.13 per share, falling short of the Zacks Consensus Estimate of $1.14. The bottom line improved 27% year over year, driven by a 1.4 percentage point margin expansion to 16.5% and 5.29% higher revenues to $1.927 million, despite supply-chain disruptions. The top line, however, fell short of the Zacks Consensus Estimate of $1,971.6 million.

Total operating expenses in the reported quarter increased 4.1% year over year to $356 million, primarily due to an 18% increase in engineering costs and a 1.7% uptick in selling, general and administrative expenses. The operating ratio (operating expenses as a percentage of revenues) deteriorated 30 basis points from the year-ago quarter’s figure to 18.4%. During the quarter, WAB bought back 3.1 million shares for $296 million.

Segmental Highlights

Freight net sales increased 11.7% to $1,322 million. Results were boosted by upbeat demand for Freight Services, components and equipment along with the acquisition of Nordco. Segmental operating margin (on an adjusted basis) increased to 19.6% from 18.1% in the year-ago quarter.

At the transit segment, net sales declined 6.5% to $605 million due to supply-chain issues, COVID-related disruptions and an unfavorable foreign currency exchange. Segmental adjusted operating margin improved to 12.3% from 12.2%.

Balance-Sheet Data

As of Mar 31, 2022, Wabtec had $488 million worth of cash and cash equivalents compared with $473 million at the end of 2021. WAB generated cash from operations of $161 million in the March quarter.

Long-term debt at the end of the quarter was $4,225 million compared with $4,056 million at 2021end.

2022 Guidance Reiterated

Wabtec reaffirms sales in the range of $8.3-8.6 billion. Adjusted earnings per share are still estimated in the band of $4.65-$5.05. Wabtec continues to expect strong cash flow generation with operating cash flow conversion exceeding 90%.

 

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month.

VGM Scores

At this time, Wabtec has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions has been net zero. Notably, Wabtec has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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