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Can Wabtec (WAB) Tide Over High-Cost Hurdle in Q1 Earnings?

Zacks Equity Research

Westinghouse Air Brake Technologies Corporation, operating as Wabtec Corporation WAB, is scheduled to report first-quarter 2019 results on Apr 25, before the market opens.

Last reported quarter, the company witnessed a negative surprise of 4.9%. However, the bottom line improved on a year-over-year basis. Also, total sales outpaced the Zacks Consensus Estimate and increased year over year as well.

Wabtec is likely to suffer a similar fate in the first quarter as well with the Zacks Consensus Estimate for earnings being revised 22.3% downward in the last 60 days.

Factors at Play

Wabtec’s high operating expenses are likely to hamper its bottom-line growth in the first quarter. Although the company’s merger completion with GE Transportation is a huge positive, it is worth noting that the same will push expenses further due to integration costs. Also, steep operating costs might lead to deterioration in operating ratio (operating expenses as a percentage of revenues), a key measure of efficiency.

Shares of the company underperformed its industry in the January-March period, mainly due to high costs. While the stock gained a mere 4.9%, the industry rallied 10%.


 

Meanwhile, Wabtec’s expanded product portfolio from the merger with GE Transportation is expected to boost its overall results in the first quarter. Notably, the combined entity has a larger customer base and focuses on innovation.

Further, organic sales growth should drive revenues at the Transit and freight segment, thereby aiding top-line growth in the soon-to-be-reported quarter.

Earnings Whispers

Our proven model does not conclusively show that Wabtec is likely to beat estimates in the soon-to-be-reported quarter. This is because a stock needs to have both a positive Earnings ESP and a solid Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as elaborated below.

Earnings ESP: Wabtec has an Earnings ESP of 0.00% as both the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at 80 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Wabtec carries a Zacks Rank #4 (Sell).

We caution against stocks with a Zacks Rank of 4 or 5 (Strong Sell) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Investors interested in the broader Transportation sector may consider C.H. Robinson Worldwide, Inc. CHRW, Werner Enterprises, Inc. WERN and Triton International Limited TRTN as these stocks possess the perfect mix of elements to beat on earnings in the next releases.

C.H. Robinson has an Earnings ESP of +0.22% and a Zacks Rank #3. The company will release first-quarter earnings numbers on Apr 30.

Werner has an Earnings ESP of +2.06% and a Zacks Rank of 3. The company is set to report first-quarter financial figures on Apr 25.

Triton has an Earnings ESP of +2.51% and is a #3 Ranked player. The company is scheduled to announce first-quarter results on Apr 30. You can see the complete list of today’s Zacks #1 Rank stocks here.

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