The Rising Influence of Rising Affluence

[DewDiligence]

Barron’s like WAB as a mass-transit/infrastructure play—and it’s also a ‘TGDT’ beneficiary that generates 60% of sales ex-US:

http://www.barrons.com/articles/wabtec-shares-could-power-up-nearly-20-in-a-year-1492231865

Westinghouse Air Brake Technologies sat out the postelection rally in industrial stocks, but the provider of equipment and services for railroad and mass-transit equipment could move up this year as rail volumes stabilize after a two-year slump.

…Wabtec, as it is more commonly known (ticker: WAB), completed some 50 acquisitions in the past decade, growing overseas and expanding into the steadier transit market, which is less cyclical than freight. The $1.7 billion purchase last year of France-based Faiveley Transport, its largest deal to date, makes it a formidable rival in Europe, the world’s largest transit market, and Asia, the fastest-growing.

About 65% of this year’s sales will come from abroad, up from 50% five years ago.

…The outlook for global transit is the brightest in 20 years, says veteran industrials analyst Nicholas Heymann, of William Blair, who has an Outperform rating on the stock. The global mass-transit market’s growth has tripled recently to 4% to 5% a year as emerging nations like India look to ease urban congestion and a push for energy efficiency sparks investment in mass transit in Europe.

This is a long-term opportunity. For Wabtec, getting its brakes and safety technology into the new systems means gaining an edge in providing service and maintenance for the life of the vehicle, often 30 to 50 years.

About 60% of sales will come from mass transit this year, up from some 40% five years ago.

…Yet instead of recognizing the change in Wabtec’s business mix, the stock market has fixated on the U.S. freight-volume slump, which led Wabtec to report its first annual earnings decline since 2009 last year. Although Wabtec has cut costs to counter market weakness, its stock slid 2% in the past six months, while the Standard & Poor’s 500 index rose 9%.

…“This is a company that doesn’t go on sale very often,” says Paul Larson, a manager of the $4.8 billion Oppenheimer Capital Appreciation fund. “It had a near-term hiccup that is now in the rearview mirror. The view out of the windshield is better.”

…At 17 times 2018 earnings estimates, the shares trade slightly below the market multiple—and their historical price/earnings ratio of 22.

…Wabtech’s improved positioning abroad will help drive growth. Instead of being a distant No. 3 to privately held Knorr-Bremse and Faiveley in European mass transit, Wabtec is now a formidable No. 2, with a 25% market share, up from 5%.

There aren’t a lot of ways for investors to exploit looming growth in the worldwide mass-transit market.

I last posted about WAB two years ago (#msg-113300894), when the WSJ highlighted WAB’s opportunity in installing Positive Train Control (PTC) systems—a safety feature required for new locomotives that currently generates about 10% of WAB’s sales.

I have never owned the stock. If the valuation were a little lower, I would probably bite.