9:41 AM, Dec 2, 2016 — Westinghouse Air Brake Technologies (WAB), also known as Wabtec, said on Thursday it acquired Faiveley Transport, a provider of services for the railway industry with annual sales of about $1.2 billion, a move that should help the company boost earnings power in 2018, Stifel analsyt Michael Baudendistel said in a note to clients.
Wabtec, along with announcing the acquisition, also issued guidance that was below expectations for 2017, he said. The company issued 2017 earnings guidance of around $4.30, below Stifel’s outlook for $4.45, which the analyst said may be due to a weak core business. Still, that didn’t dampen Stifel’s outlook for the company.
“Despite the lower 2017 outlook, we are encouraged, as we believe the story has been de-risked some, with questions around Faiveley accretion and a preliminary 2017 guidance outlook now behind the company,” Baudendistel said in the note. “Additionally, we believe the true earnings power of the combined company is not reflected by 2017 results, which will include significant integration costs.”
Stifel lowered its 2016 and 2017 pro-forma estimates “slightly” while leaving its 2018 outlook unchanged. The researcher left its buy rating on the company and raised its target price from $88 to $95, 19 times its 2018 earnings estimate of $5 thanks to the confidence in accretion from Faiveley, lower risk profile and higher valuation attributable to “optimism” surrounding a Trump presidency.
The company is poised for “solid” growth in 2018 as several segments should show improvement, Baudendistel said. Freight woes likely will bottom in 2017 and rail volume may be positive next year.
“We believe the true benefit of synergies from the Faiveley deal will be more fully realized in 2018, as net synergies next year are expected to be only $7 million to $10 million out of a total of $50 million in annual synergies expected by 2019,” he said. “We continue to like Wabtec as a diversified and high-quality way to invest in rail globally, both freight and transit.”
Companies: Westinghouse Air Brake Technologies Corporation
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