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Here's Why Investors Should Retain Wabtec (WAB) Stock Now
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Wabtec Corporation (WAB - Free Report) is being well-served by its strategic acquisitions and financial strength. However, headwinds like demand weakness and input cost inflation are concerning.
The stock has gained 3.8% year to date compared with the 5% rise of its industry.
Image Source: Zacks Investment Research
Factors Favoring WAB
Wabtec’s top line performance (up 13.9% year over year in first-quarter 2023) continues to benefit from solid growth across its Freight segment’s revenues. Segmental revenues rose 18.5% year over year on the of strength across all product lines, with solid growth in Equipment, Digital Electronics and Services. For 2023, Wabtec expects sales in the range of $8.7-$9 billion.
Wabtec’s growth-by-acquisition strategy also looks good. The most recent move in this respect is the buyout of L&M Radiator, a manufacturer of heavy-duty equipment radiators and heat exchangers. The all-cash deal is valued at $230 million.
Management expects the L&M buyout to boost its EPS (excluding transaction costs) with immediate effect. The acquisition allows WAB to expand its installed base and recurring revenues in mining, engine cooling and heat transfer solutions. This buyout expedites the scope for growth across L&M’s innovative products domestically as well as internationally.
Wabtec’s efforts to reward its shareholders also bode well. Strong cash flow generating ability supports its shareholder-friendly approach. It anticipates to continue generating impressive cash flow in the current year. Operating cash flow conversion is likely to exceed 90%.
Key Risks
Supply-chain disruptions are a bane for a company. Factors like high commodity costs and shortages of component, chip and labor are likely to continue hurting results, at least in the near term.
High operating expenses are weighing on Wabtec's bottom line. Evidently, total operating expenses in the first quarter of 2023 increased $33 million to $389 million. The operating ratio (operating expenses as a percentage of revenues) deteriorated 70 basis points from the year-ago quarter to 17.7%.
Copa Holdings is benefiting from an improvement in air-travel demand. In first-quarter 2023, passenger revenues increased 28.5% from first-quarter 2019 levels due to higher yields.
CPA’s focus on its cargo segment is encouraging. In first-quarter 2023, cargo and mail revenues grew 51.8% from first-quarter 2019 levels on higher cargo volumes and yields.
Copa Holdings' fleet modernization and cost-management efforts are commendable. The Zacks Consensus Estimate for current-year earnings has been revised 25.3% upward over the past 60 days.
Global Ship Lease is being aided by the bullish sentiment surrounding the containership market. GSL’s strong balance sheet is an added positive. An uptick in trading volumes bodes well for GSL.
The Zacks Consensus Estimate for current-year earnings has moved up 4.2% over the past 60 days. GSL outpaced the Zacks Consensus Estimate for earnings in each of the last four quarters, the average beat being 15.64%.
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Here's Why Investors Should Retain Wabtec (WAB) Stock Now
Wabtec Corporation (WAB - Free Report) is being well-served by its strategic acquisitions and financial strength. However, headwinds like demand weakness and input cost inflation are concerning.
The stock has gained 3.8% year to date compared with the 5% rise of its industry.
Image Source: Zacks Investment Research
Factors Favoring WAB
Wabtec’s top line performance (up 13.9% year over year in first-quarter 2023) continues to benefit from solid growth across its Freight segment’s revenues. Segmental revenues rose 18.5% year over year on the of strength across all product lines, with solid growth in Equipment, Digital Electronics and Services. For 2023, Wabtec expects sales in the range of $8.7-$9 billion.
Wabtec’s growth-by-acquisition strategy also looks good. The most recent move in this respect is the buyout of L&M Radiator, a manufacturer of heavy-duty equipment radiators and heat exchangers. The all-cash deal is valued at $230 million.
Management expects the L&M buyout to boost its EPS (excluding transaction costs) with immediate effect. The acquisition allows WAB to expand its installed base and recurring revenues in mining, engine cooling and heat transfer solutions. This buyout expedites the scope for growth across L&M’s innovative products domestically as well as internationally.
Wabtec’s efforts to reward its shareholders also bode well. Strong cash flow generating ability supports its shareholder-friendly approach. It anticipates to continue generating impressive cash flow in the current year. Operating cash flow conversion is likely to exceed 90%.
Key Risks
Supply-chain disruptions are a bane for a company. Factors like high commodity costs and shortages of component, chip and labor are likely to continue hurting results, at least in the near term.
High operating expenses are weighing on Wabtec's bottom line. Evidently, total operating expenses in the first quarter of 2023 increased $33 million to $389 million. The operating ratio (operating expenses as a percentage of revenues) deteriorated 70 basis points from the year-ago quarter to 17.7%.
Zacks Rank
WAB carries a Zacks Rank #3 (Hold).
Stocks to Consider
Some better-ranked stocks in the Zacks Transportation sector are Copa Holdings (CPA - Free Report) and Global Ship Lease (GSL - Free Report) , each currently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Copa Holdings is benefiting from an improvement in air-travel demand. In first-quarter 2023, passenger revenues increased 28.5% from first-quarter 2019 levels due to higher yields.
CPA’s focus on its cargo segment is encouraging. In first-quarter 2023, cargo and mail revenues grew 51.8% from first-quarter 2019 levels on higher cargo volumes and yields.
Copa Holdings' fleet modernization and cost-management efforts are commendable. The Zacks Consensus Estimate for current-year earnings has been revised 25.3% upward over the past 60 days.
Global Ship Lease is being aided by the bullish sentiment surrounding the containership market. GSL’s strong balance sheet is an added positive. An uptick in trading volumes bodes well for GSL.
The Zacks Consensus Estimate for current-year earnings has moved up 4.2% over the past 60 days. GSL outpaced the Zacks Consensus Estimate for earnings in each of the last four quarters, the average beat being 15.64%.