Wabtec Could add 40-to-50 Cents to EPS in 2019 with GE Transportation Merger

• We are pleased with Wabtec’s strategic plan to merge with GE Transportation, a global leader in freight locomotive manufacturing and servicing, in an $11 billion deal, creating one of the world’s largest providers of equipment, systems and services to Freight (content on virtually every locomotive and freight car in NAFTA) and Transit markets;
• The merger will essentially double Wabtec’s revenue to nearly $8 billion, adds $18 billion to Wabtec’s current $5 billion backlog, raises margins (a combined 15% EBIT margin for 2017 vs 13% for Wabtec alone) and further enhances Wabtec’s offerings for autonomous train control;
• GE Transportation will increase Wabtec’s exposure to the more cyclical Freight market to 68% of total revenue (from 35% currently), at a time when Freight appears to be on an upturn with GE Transportation’s revenue and adjusted EBIT expected to increase at a CAGR of 12% and 14%, respectively, over the next two years;
• Wabtec expects the merger will provide 15% cash EPS accretion in year one; our early estimate is that the merger could add 40 cents-to-50 cents to EPS in 2019, but maintaining our projections and rating until the acquisition closes (expected in early 2019).