Wabtec Struggling With Weak Freight Demand And Poor Operating Leverage

When I last wrote about Wabtec (WAB), my call was a pretty tepid “neutral”, as although I saw some undervaluation in the shares, I didn’t have much confidence in the rail freight outlook, nor in management’s ability to drive internal outperformance. Since then, the shares have risen about 5%, more or less tracking the S&P 500, but lagging the Dow Jones Transportation Average by about 10%.

Unfortunately, I still don’t see many reasons to be positive in the short term. Rail freight is shaping up poorly for Wabtec in 2021, with virtually no demand for new locomotives, inadequate demand for locomotive overhauls, and weak freight car build rates, and while the outlook for transport is brighter, it’s a lower-margin business.

I can respect the idea of buying into stocks at the point of “maximum pessimism”, and maybe Wabtec is near that point. Likewise, I can see Wabtec as a $100 stock in 2023, but investors are going to need some patience here.

 

Read the full article here: 

Wabtec Struggling With Weak Freight Demand And Poor Operating Leverage