Wabtec Makes Its Third-Largest Deal, And Rail Continues To Recover

 

Writing about Wabtec (NYSE:WAB) a month ago, I did see some near-term risks to the business from the freight business, but more so from sell-side expectations that I thought were a little too high. I also saw an opportunity to buy into a large player in freight and passenger train equipment and services at a time when pessimism was still running high.

A month isn’t much of a window for evaluating performance, but the shares have modestly outperformed the S&P 500 since then (while almost matching the Dow Jones Transports). More interesting to me are the revisions in sell-side expectations, the announcement of the Nordco deal, and some opportunities tied to federal infrastructure stimulus. Between them, I believe Wabtec has upgraded the business and expectations are a little more reasonable for the near term.

I still believe that Wabtec could be a $100-plus stock in 2023 and in normal markets, that’s not a bad prospective return. I’m expecting long-term adjusted revenue in the low single-digits, reflecting challenges and changes in the freight market, as well as mid-single-digit FCF growth and margin improvements over the next three to five years.

 

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Wabtec Makes Its Third-Largest Deal, And Rail Continues To Recover