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Is GE's Loss Wabtec's Gain

Burt Rothberg profile picture
Burt Rothberg


  • Wabtec is embarking on a transformative acquisition.
  • It has much experience in acquisitions, although not this large.
  • The diesel-electric locomotive business has been hit hard.
  • I believe the locomotive business will turn around.
  • Urban transit is also a growth market.

Wabtec (NYSE:WAB) started as Westinghouse Air Brake in 1869! It's first product, the automatic air brake, revolutionized the railroad industry. WAB is one of the few companies of that era to survive in more or less its original form. It now supplies a variety of components and supplies to the world railroad industry, freight, passenger and transit.

The railroad supply industry was historically somewhat fragmented, like the railroads themselves. As the North American class I railroads have merged into eight companies, their negotiating power has increased relative to their suppliers. Wabtec has slowly been attempting to rationalize the supply industry by means of multiple acquisitions. Many of these were small or medium sized, although it merged with Faiveley Transportation (a French company) in 2015. This was closer to a merger of equals. It is now embarking on what could become a transformative acquisition, purchasing the RR motive power business of General Electric (GE).

WAB is firmly in the mid-cap space and not widely researched. Here are some basic facts:

All values in $US and as the latest reported.

EPS $3.11
Annual Revenue $3.3 Billion
Transit % 64%
Freight % 36%
US % 34%
ROW % 66%
P/E 15.3
P/Book 2.2
EPS CAGR 2007-2018 9.7%
Sales CAGR 2007-2018 11%
Net Debt as % of Total Assets, Latest 45%

The full table of the latest financials is at this link.

At first glance I found it surprising that WAB was able to grow so quickly in a mature industry. The reason of course is their acquisitions, particularly Faiveley. As part of this process WAB has levered up. Net debt was actually negative 10 years ago.

Before I give the bull case, I want to address a valuation issue. The company has a tangible book value of negative ($674MM). This would normally be

This article was written by

Burt Rothberg profile picture
Burt Rothberg is a Seeking Alpha contributor.

Analyst’s Disclosure: I am/we are long GE, WAB. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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