Sunday, February 28, 2016

Seeking Alpha: Wabtec Pivoting Away From Freight Weakness, But At A Price

The overall weakness in industrial and machinery markets has undermined a lot of stocks that were once bulletproof (or nearly so), and Wabtec (NYSE:WAB) has gotten caught up in that as well. The shares have lost almost 30% of their value since the last time I profiled the company, as investors have grown more and more concerned about the growing weakness in the North American freight rail sector and the potential margin consequences of the expensive takeover of France's Faiveley (OTC:FVLTY).

I have more than a few concerns about the price Wabtec is paying to acquire a business that has only very rarely posted double-digit FCF margins or returns on capital. I freely allow that financial ratios don't always capture the full picture and value of a business, but overpaying for M&A is a time-tested means of destroying shareholder value.

That said, I understand why Wabtec is pursuing the deal, as larger exposure to the international transit rail market seems like a reasonable move to make today. Wabtec's shares could still merit a fair value in the high $80s if you believe the company will eventually grab significant share of the international freight and transit markets. Keep in mind, though, that that has been the story for a while now, and the company's progress in organic terms hasn't really helped support it all that much.

Continue here:
Wabtec Pivoting Away From Freight Weakness, But At A Price

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