WAB, Old Faithful
Wabtec, my seventh biggest and one of my middle-to-large positions, is boring. For instance, they were recommended in Oct 2012 as a MF SA pick and they have only 127 posts in those two years and 3 months… And 40 of those 127 posts were mine! However I bought into WAB a couple of months after the recommendation at $43.75 and it was over $91 a few weeks ago, and was still, even with all this weakness in the market, at $87.10 at Friday’s close. Just about 100% in two years.
So why am I in this boring company and what does it do? Well it makes air brakes and about everything else for trains (boring again), which includes metro transit as well. This means that they have a large replacement parts business which is high margin recurring revenue, as once you buy the original part, it’s too much trouble (and possibly dangerous) to change to another with different specs. Wabtec is a big dog in this market and constantly gets bigger by acquisitions, which it is very good at assimilating.
Okay, how has it done so far? Well… it’s the only stock on any US market that has been up every year of this century, right through minor recessions and the big one in 2008 and 2009. Every year!
So how did they do it? Well here’s what their revenues have looked like the past four years.
2011: 455 479 499 535 = 1.97 billion
2012: 583 610 588 610 = 2.39 billion
2013: 616 638 631 682 = 2.57 billion
2014: 695 731 797
Just keeps moving up. Nothing exciting. Very boring, in fact, but boring up.
My off-the-cuff estimate for the December quarter would be $830 million, up from $682 million, or up about 22%. That would give them yearly revenue of about $3.05 billion for 2014.
EPS over the same quarters have been:
2011: 43 47 48 48 = 1.86
2012: 61 68 65 67 = 2.61
2013: 72 77 76 79 = 3.04
2014: 83 91 93
And I’d guess 96 for the last quarter, giving them a total for the year of $3.63 and a PE of about 24. Same story, just keeps moving up.
Just for interest, here are their operating margins (in %).
2011: 14.6 11.8 15.1 14.6 = 14.0
2012: 16.1 16.5 16.5 16.5 = 16.4
2013: 16.8 17.4 17.5 16.3 = 17.0
2014: 17.5 18.1 17.1
Ditto. Just keeps moving up in spite of acquisitions.
And their last quarter:
Oct 2014 - reported record results for the Sept quarter, including the following:
Sales were a record $797 million, up 26%, with half the growth due to acquisitions.
Income from operations was a record $136 million, or 17.1% of sales.
Earnings were a record 93 cents, which was up 22%.
Backlog was a record $2.18 billion.
They had cash of $213 million and debt of $522 million.
Wabtec increased its 2014 guidance for earnings per share from $3.52 to $3.60, with revenues expected to be up about? 18% for the year. This guidance includes the acquisition of Dia-Frag and C2CE, which closed in the Sept quarter.
During the quarter, they repurchased 124,600 shares of stock for $10 million. Diluted shares are down by 170,000.
From Conference Call –
Cash flow from operations was strong as we generated $93 million for the quarter.
Our backlog. increased during the quarter and now stands at a record $2.18 billion, which is about 21% higher than at the end of June !!! From these statistics, you, obviously, can see that the business is performing well.
Conclusion: All Good.