2Q Miss; Maintaining Rating but Lowering Estimates
- Wabtec’s 2Q17 (June) adjusted EPS of $0.80 (vs $1.05 a year earlier) missed our estimate by 14 cents;
- Due to the 2Q shortfall and Company management not yet seeing a recovery in Freight, our 2017 EPS projection is now $3.58 (vs $3.85 in 2016, Company lowered guidance of $3.55-to-$3.70, and our previous $4.14 estimate);
- For 2018, our EPS estimate is now $4.20 (from $4.85), up 17% from a difficult 2017, assuming better results in Freight and synergies from Faiveley (LEY);
- We are maintaining our GRADUALLY ACCUMULATE rating, with double-digit EPS growth projected to return in 4Q17 (Dec), given the record $4.5 billion backlog (up 10% sequentially) and record new Transit business, improving results at railroads and carloads expected to eventually spark improvement in Freight, along with growing synergies from acquired LEY and easy prior-year comparisons.
Wabtec primarily serves the global freight rail and passenger transit industries. The company provides its products and services through two segments: Freight, which primarily manufactures and provides aftermarket parts and services for new locomotives; provides components for new and existing locomotives and freight cars; builds new commuter locomotives; and supplies rail control and infrastructure products, among others: and Transit, which primarily manufactures and services components for new and existing passenger transit vehicles, mainly regional trains, high speed trains, subway cars, light-rail vehicles and buses; and supplies rail control and infrastructure products, among others.
Great Lakes Review is located in Cleveland, Ohio, was founded in 1981 and became a division of Wellington Shields & Co. LLC in 2011. Great Lakes Review is a research boutique focused on the fundamentally-oriented investor seeking companies that dominate their respective specialty niche regardless of industry. The objective is to make money for the long-term by gradually accumulating a diversified portfolio from a universe of no more than 30 companies. Although short-term-oriented accounts will be alerted to trading opportunities, aggressive sell recommendations are triggered only by a deterioration in long-term fundamentals, not by short-term blips or investor fancy. Coverage of those names that lose their earnings momentum or earnings predictability may be dropped and replaced with more vital candidates.
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