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Small Cap Profile: Wabtec (WAB) - Jul28

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Stock Brief

Updated: 28-Jul-05

Small Cap Profile: Wabtec (WAB)

[BRIEFING.COM -- Robert J. Reid] Railroad stocks are hot these days. Demand for coal continues to surge, which in turn drives demand to transport the coal via rail. Railroad stocks are posting nice gains, prompting many to upgrade and build their fleet and infrastructure. Wabtec (WAB) is one of the world's largest providers of equipment and services for the rail industry and has a 50% market share for braking equipment.

If you have any ideas, comments, or questions, please email rreid@briefing.com.

Key Points

  • Wabtec (WAB 23.33 +0.07) is one of the world's largest providers of equipment and services for the rail industry.
  • Background: Products include brakes, draft gears, couplers, air compressors, railway electronics (event recorders, control and monitoring equipment, and end of train devices), friction products, door assemblies, heat exchangers/cooling systems etc.
  • Dominant Market Share: The co believes it holds a 50% market share in North America for its primary braking-related equipment and a number 1 or number 2 position for most of our other product lines. and for customers, can be found on virtually all U.S. locomotives, freight cars and passenger transit vehicles.
  • Strong Growth: The co is posting strong growth. In Q2, sales rose 31% yoy to $270.2 mln and EPS rose 60% to $0.32. The co is expected to earn $1.48 next year for a p/e of 15.8x on 33% EPS growth. The p/e is attractive given the co's growth characteristics.
  • Strong Results Illustrate Huge Demand for Rail: FrieghtCar America (RAIL), which makes rail cars to haul coal, recently posted a blowout quarter. RAIL's backlog of unfilled orders has reached 15,867 units, nearly double the backlog a year ago. Portec Rail Products (PRPX), which makes rail joints, rail anchors and spikes, railway friction management products, etc., reported strong Q2 results. Strong results from the rail sector (CSX, NSC) show demand for rail transport, especially coal, is booming. Coal producers Massey Energy (MEE) and Arch Coal (ACI) report strong demand for coal, and the rail needed to transport it. Specifically for WAB, Arch Coal talked about transportation problems via railroad due to floods and mudslides. However, railroads are now performing major maintenance on the entire joint line rail system in the Powder River Basin.
  • Should Benefit: With RAIL confirming such a hot coal market and FCL numbers indicating that coal prices set to remain high, we would expect railroads to continue upgrading their lines to meet the demand of the coal cos. Wabtec is clearly in-line to benefit as evidenced by its strong Q2 report.
  • Technicals: The trading action has been positive as the stock has steadily climbed higher. WAB has seen great action between its Oct 2004 peak of 22.70 and its early July high of 22.56. Stock is trending higher nicely. We like it above its 50-day simple ma currently at 21.36.
  • Bottom Line: Railroad stocks are hot these days. Demand for coal continues to surge, which in turn drives demand to transport the coal via rail. Railroad stocks are posting nice gains, prompting many to upgrade and build their fleet and infrastructure. Wabtec (WAB) is one of the world's largest providers of equipment and services for the rail industry and has a 50% market share for braking equipment.

--Robert J. Reid, Briefing.com

Copyright © 2005 Briefing.com. All rights reserved.

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