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Wabtec Corp.

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Westinghouse Air Brake Technologies Corp. (WAB - Free Report) , 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.

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