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Here's Why You Should Retain Wabtec (WAB) in Your Portfolio

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Westinghouse Air Brake Technologies Corporation, operating as Wabtec Corp. (WAB - Free Report) is benefiting from solid growth across its Freight segment.  Low debt is another  tailwind. However, high operating expenses pose concerns.

Factors Favoring WAB

Wabtec exited the fourth quarter of 2022 with cash and cash equivalents of $541 million, which is above the current debt of $251 million. This indicates that the company has enough cash to meet its current debt obligations.

Freight revenues continue to drive Wabtec’s top-line performance (up 11.2% year over year). Notably, Freight net sales increased 17.1% to $1,669 million. Results were boosted by 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.

Key Risk

High operating expenses are hurting Wabtec's bottom line. Evidently, total operating expenses in the fourth quarter of 2022 increased by $17 million to $405 million. The operating ratio (operating expenses as a percentage of revenues) deteriorated 120 basis points from the year-ago quarter’s figure to 17.5%.

Zacks Rank & Key Picks

Wabtec currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Zacks Transportation sector are American Airlines (AAL - Free Report) and Copa Holdings, S.A. (CPA - Free Report) .

American Airlines, currently sporting a Zacks Rank #1 (Strong Buy), is benefiting from the improved air-travel-demand situation. In the fourth quarter of 2022, AAL reported earnings of $1.17 per share, surpassing the Zacks Consensus Estimate by 2.63%. You can see the complete list of today’s Zacks #1 Rank  stocks here.  

For first-quarter and full-year 2023, AAL’s earnings are expected to register 101.3% and 386% growth, respectively, on a year-over-year basis.

Copa Holdings is also sporting a Zacks Rank #1 at present. We are encouraged by CPA's focus on its cargo segment.

For first-quarter and full-year 2023, CPA’s earnings are expected to register 302.9% and 40.8% growth, respectively, on a year-over-year basis.
 

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