Here's Why You Should Retain Wabtec Stock in Your Portfolio

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Westinghouse Air Brake Technologies Corporation WAB, operating as Wabtec Corporation, is benefiting from the strong performance of its segments, Freight and Transit. The shareholder-friendly approach bodes well for the company. Lingering supply-chain disruptions and valuation concerns represent major challenges.

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Wabtec’s focus on new technologies aims to provide solutions to improve the safety, cost and reliability of rail, as well as support the modernization of the global rail fleets. The company is strengthening its operations with strategic acquisitions. To this end, Wabtec recently announced the acquisition of Bloom Engineering, a provider of industrial heating applications. Bloom Engineering joins Wabtec’s Freight and Industrial Components Group. The recent new order wins in Kazakhstan are expected to boost revenues further.

Despite signs of cooling inflation, the measure is still well above the Fed’s 2% target. We note that the WAB has been experiencing significant levels of inflation, including higher prices for labor, freight and fuel. WAB is focusing on cost-cutting measures and making efforts to improve productivity and efficiency, to mitigate high expenses and weaker-than-expected demand scenarios.

The company aims to provide real-time visibility and optimization to help busy railroads stay on schedule and recover from disruptions faster. Highlighting its pro-investor stance, Wabtec’s management announced a 17.6% increase in its quarterly dividend concurrent with the company’s fourth-quarter 2023 earnings release on Feb. 14, 2024.

Driven by the positives, WAB shares have outperformed its industry over the past six months.

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Although economic activities picked up from the pandemic gloom, supply-chain disruptions continue to dent stocks like WAB. Factors like higher commodity costs and shortages of components, chips and labor are major headwinds. High operating expenses are hurting Wabtec’s bottom line.

WAB stock currently looks overvalued. Considering the forward 12-month Price/Earnings ratio, WAB looks overvalued when compared with the broader industry. The stock has a forward 12-month P/E of 21.92X compared with 16.33X for the industry. The company’s trailing 12-month P/E ratio is also above the five-year median level of 18.15. These factors indicate that the stock’s valuation is quite stretched.

The company has substantial operations outside the United States and generates a significant portion of its net revenues from sales to customers outside the United States. Hence, volatility in foreign exchange is a significant concern.