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

Stephen Simpson profile picture
Stephen Simpson


  • Wabtec's deal for Nordco looks like a relatively low-risk way to expand maintenance of way offerings, with added revenue synergy potential from taking Nordco's offerings worldwide.
  • The proposed infrastructure bill includes potentially significant funding support for transport and freight rail, including modernization of rolling stock, track, and signaling.
  • Mid-single-digit long-term FCF growth can support a fair value around $100 in 2023 and a mid-to-high single-digit return thereafter; a decent but perhaps not compelling return opportunity.

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.

Nordco Expands The Service Offering

Maintenance of way hasn’t historically been a large part of Wabtec’s business, but management decided to diversify in that direction, acquiring Nordco from Greenbriar for $400M. The deal values Nordco at about 10x forward EBITDA and represents the third-largest deal in Wabtec’s history.

Nordco generates about 50% of its revenue from roadway work equipment, including spike drivers/pullers, tied exchangers, ballast regulators, cribbers, and another 10% from rail inspection equipment. The remaining 40% comes from railcar movers, shuttle wagons, and lift trucks, and there’s a small ESG kicker here, as Nordco is, I believe, the only provider of battery electric equipment in this segment.

Given the customer

This article was written by

Stephen Simpson profile picture
Stephen Simpson is a freelance financial writer and investor. Spent close to 15 years on the Street (sell-side, buy-side, equities, bonds); now a semi-retired raccoon rancher. That last part isn't entirely true. Probably.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

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