With an impressive daily gain of 4.93% and Earnings Per Share (EPS) (EPS) of 3.58, Westinghouse Air Brake Technologies Corp (WAB, Financial) has been catching investors' attention. However, the question remains: is this stock modestly overvalued? To answer this, we delve into an extensive valuation analysis of the company, inviting you to join us in this financial exploration.
Company Introduction
Westinghouse Air Brake Technologies Corp, a provider of value-added, technology-based products and services for the rail industry, operates primarily through its two main business segments, Freight and Transit. The company's current stock price stands at $118.62, which is compared against its GF Value, a proprietary measure of fair value, of $99.99. This comparison forms the basis of our valuation analysis, combining financial metrics with key company details.
Understanding the GF Value
The GF Value is a unique estimation of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor derived from the company's past performance and growth, and future business performance estimates. The GF Value Line on our summary page provides an overview of the ideal fair trading value of the stock.
According to the GF Value, Westinghouse Air Brake Technologies (WAB, Financial) appears to be modestly overvalued. This assessment is based on key factors including historical multiples, an internal adjustment reflecting the company's past business growth, and analyst estimates of future business performance. If the share price significantly exceeds the GF Value Line, the stock may be overvalued and offer poor future returns. Conversely, if the share price is significantly below the GF Value Line, the stock may be undervalued, promising higher future returns. Given its current price of $118.62 per share, Westinghouse Air Brake Technologies (WAB) seems modestly overvalued.
Given this overvaluation, Westinghouse Air Brake Technologies' stock is likely to provide lower long-term returns than its business growth.
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Financial Strength of Westinghouse Air Brake Technologies
Investing in companies with poor financial strength carries a higher risk of permanent capital loss. Therefore, it's crucial to carefully review a company's financial strength before purchasing its stock. Westinghouse Air Brake Technologies has a cash-to-debt ratio of 0.1, ranking it lower than 85.26% of companies in the Transportation industry. However, with an overall financial strength rank of 6 out of 10, Westinghouse Air Brake Technologies' financial strength is considered fair.
Profitability and Growth
Investing in profitable companies carries less risk, especially those that have demonstrated consistent profitability over the long term. Westinghouse Air Brake Technologies, having been profitable for 10 out of the past 10 years, fits this criterion. With revenues of $8.6 billion and an EPS of $3.58 over the past 12 months, its operating margin of 12.15% is better than 63.96% of companies in the Transportation industry. This performance earns Westinghouse Air Brake Technologies a fair profitability rank from GuruFocus.
One of the most crucial factors in company valuation is growth. According to GuruFocus research, long-term stock performance is closely correlated with growth. Companies that grow faster create more value for shareholders, particularly when that growth is profitable. Westinghouse Air Brake Technologies' average annual revenue growth is -0.4%, ranking it lower than 62.07% of companies in the Transportation industry. However, its 3-year average EBITDA growth of 13% is better than 58.75% of companies in the industry.
ROIC vs WACC
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Westinghouse Air Brake Technologies' ROIC was 4.94, while its WACC came in at 9.76.
Conclusion
In conclusion, Westinghouse Air Brake Technologies (WAB, Financial) appears to be modestly overvalued. The company's financial condition and profitability are both fair, and its growth ranks better than 58.75% of companies in the Transportation industry. To learn more about Westinghouse Air Brake Technologies stock, you can check out its 30-Year Financials here.
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