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Wabtec (WAB) to Foray Into Impressive League of S&P 500

Zacks Equity Research
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Westinghouse Air Brake Technologies Corporation, which operates as Wabtec Corporation WAB, is set to join the coveted S&P 500, before the market opens on Feb 27.

The transportation company will replace The Goodyear Tire & Rubber GT while the latter will be part of the S&P MidCap 400 index from Feb 27 onward. The inclusion of Wabtec in this highly sought-after index will follow its acquisition of Transportation Systems Holdings, a unit of General Electric GE, on Feb 26.

With a portfolio of 500 companies accounting for more than 80% coverage of the available market capitalization, the S&P 500 is widely considered the best single measure of large cap U.S. equities. The list is periodically modified to do away with the stocks that have been acquired by other companies, delisted from the stock exchange or failed to meet the mandatory criteria of the index. Consequently, other companies that match the inclusion criteria are added to the list to replace the scrapped stocks.

A company needs to fulfill certain criteria to be included in the S&P 500. Firstly, its market cap should be at least $8.2 billion. Moreover, the ratio of annual dollar value traded to float adjusted market capitalization should be 1 or more. Also, the company should trade at least 250,000 shares in each of the six months leading to the evaluation date.

The stock should be primarily listed on an eligible U.S. exchange like the NYSE (including NYSE Arca and NYSE MKT), the NASDAQ Global Select Market, the NASDAQ Select Market or the NASDAQ Capital Market. ADRs are not qualified for addition. There are other criteria that a company must accomplish to be listed on the S&P 500 scale. For example, it should file 10-K annual reports.

Following the inclusion of Transportation Systems Holdings, Wabtec, carrying a Zacks Rank #4 (Sell), is expected to complete all criteria before being inducted into the S&P 500 GICS "Industrials" sector (Construction Machinery & Heavy Trucks Sub-Industry index). 

We note that as of Jan 31, 2019, the "Information Technology" sector had the highest representation (19.9%) on the S&P 500 index. The Industrials sector stood sixth in terms of representation (9.5%) while the Materials Services sector was least represented (2.7%).

As of Jan 31, the mean market capitalization of the constituents was $47.19 billion while the median market cap came in at approximately $20.27 billion.

Key Pick

Investors interested in the Zacks Transportation sector may consider a better-ranked stock like Air Lease Corporation AL, holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Air Lease has an expected EPS growth rate (three to five years) of 8.5%.

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Air Lease Corporation (AL) : Free Stock Analysis Report
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