Westinghouse Air Brake Technologies Corp.
(
WAB
), which runs its business as
Wabtec Corp.
, has gained over 56% since October 2011, thanks to the growing
U.S. freight railroad industry, higher railcar & locomotive
delivery rates, and a stable passenger railroad market. In the last
12 quarters, this leading provider of value-added technology-based
products and services for the rail industry outpaced the Zacks
Consensus Estimate 11 times and matched once.
Its earnings surprise history, along with a long-term earnings
growth projection of 15%, makes this Zacks #1 Rank (Strong Buy) a
lucrative investment opportunity for growth-seeking investors.
Robust 2Q, Outlook Raised
On July 24, Wabtec reported second-quarter adjusted earnings per
share of $1.33, outpacing the Zacks Consensus Estimate by 10 cents
(8.1%) and the year-ago earnings by 39 cents (41.5%). Net revenue
of $609.8 million beat the Zacks Consensus Estimate by 5% and
increased 27.3% year over year.
Total operating expense decreased 16% year over year to $72.6
million. Operating income reached a record high of $100.9 million,
up a substantial 79%. Consequently, operating margin increased to
16.5% from 11.8% in the year-ago quarter.
These positives encouraged management to raise its 2012 earnings
expectations to between $5.10 and $5.15 per share from $4.80
earlier. Net revenue is now expected to increase 20% year over
year, against the 15% increase projected earlier.
Strong Estimate Revisions
Earnings estimates for Wabtec have been rising over the last 60
days. The Zacks Consensus Estimates moved up 5.7% to $5.15 for 2012
and 4.3% to $5.76 for 2013. These current Zacks Consensus Estimates
indicate year-over-year growth of almost 39.2% for 2012 and 11.7%
for 2013.
Valuation Premium Warranted
Valuation of Wabtec looks relatively expensive. The current forward
P/E of 15.21x implies a premium of 50.4% over the peer group
average of 10.11x. Similarly, the current P/S ratio of 1.69
reflects a 148.5% premium to the peer group average of 0.68, and
its current P/B of 3.27x is also at a premium of 119.5% to the peer
group average of 1.49x. However, Wabtec looks quite attractive
given its trailing 12-month ROE of 20.0%, which is 60% higher than
the peer group average of 12.5%.
The premium valuation is warranted as the company has a solid order
backlog, which will sustain its future growth. Management has
targetted execution of nearly $1.2 billion of baklog in the next
12-months. Furthermore, Wabtec is paying regular dividends with a
current yield of 0.3%.
Chart Shows Growth Potential
The earnings growth is reflected in the chart below. The consensus
estimate line indicates a steep upward movement through fiscal
2015. The chart clearly shows that the stock price is expected to
move much higher than the increasing estimate trend.
Wilmerding, Pennsylvania headquartered Westinghouse Air Brake
Technologies Corp. was founded in 1869. The company manufactures a
series of critical components and offers engineering services to
freight and passenger railroads, locomotive and freight car
manufacturers, subway cars and bus manufacturers and leasing
companies.
WABTECH (WAB): Free Stock Analysis Report
WABTECH (WAB): Free Stock Analysis Report
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