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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