Wabtec (WAB)

Rail equipment company Westinghouse Air Brake Technologies (NYSE:WAB) met Wall Street’s revenue expectations in Q3 CY2025, with sales up 8.4% year on year to $2.89 billion. The company’s outlook for the full year was close to analysts’ estimates with revenue guided to $11.08 billion at the midpoint. Its non-GAAP profit of $2.32 per share was 2% above analysts’ consensus estimates.

Company Overview

Also known as Wabtec, Westinghouse Air Brake Technologies (NYSE:WAB) provides equipment, systems, and related software for the railway industry.

Heavy transportation equipment companies are investing in automated vehicles that increase efficiencies and connected machinery that collects actionable data. Some are also developing electric vehicles and mobility solutions to address customers’ concerns about carbon emissions, creating new sales opportunities. Additionally, they are increasingly offering automated equipment that increases efficiencies and connected machinery that collects actionable data. On the other hand, heavy transportation equipment companies are at the whim of economic cycles. Interest rates, for example, can greatly impact the construction and transport volumes that drive demand for these companies’ offerings.

Other companies in the freight and passenger rail industry include Trinity Industries (NYSE:TRN), and European competitors Alstom (EPA:ALO) and Knorr-Bremse AG (ETR:KBX).

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Regrettably, Wabtec’s sales grew at a mediocre 6.4% compounded annual growth rate over the last five years. This wasn’t a great result compared to the rest of the industrials sector, but there are still things to like about Wabtec.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Wabtec’s annualized revenue growth of 6.8% over the last two years aligns with its five-year trend, suggesting its demand was consistently weak. We also note many other Heavy Transportation Equipment businesses have faced declining sales because of cyclical headwinds. While Wabtec grew slower than we’d like, it did do better than its peers.

Wabtec also reports organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, Wabtec’s organic revenue averaged 6.2% year-on-year growth. Because this number aligns with its two-year revenue growth, we can see the company’s core operations (not acquisitions and divestitures) drove most of its results.

This quarter, Wabtec grew its revenue by 8.4% year on year, and its $2.89 billion of revenue was in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 9.2% over the next 12 months, an improvement versus the last two years. This projection is particularly noteworthy for a company of its scale and suggests its newer products and services will catalyze better top-line performance.

All else equal, we prefer higher gross margins because they make it easier to generate more operating profits and indicate that a company commands pricing power by offering more differentiated products.

Wabtec’s unit economics are better than the typical industrials business, signaling its products are somewhat differentiated through quality or brand. As you can see below, it averaged a decent 31.8% gross margin over the last five years. That means for every $100 in revenue, roughly $31.77 was left to spend on selling, marketing, R&D, and general administrative overhead.

Wabtec produced a 34.7% gross profit margin in Q3, up 1.4 percentage points year on year. Wabtec’s full-year margin has also been trending up over the past 12 months, increasing by 1.4 percentage points. If this move continues, it could suggest better unit economics due to more leverage from its growing sales on the fixed portion of its cost of goods sold (such as manufacturing expenses).

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Wabtec has been an efficient company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 13.7%.

Looking at the trend in its profitability, Wabtec’s operating margin rose by 6.5 percentage points over the last five years, as its sales growth gave it operating leverage.

This quarter, Wabtec generated an operating margin profit margin of 17%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Wabtec’s EPS grew at a spectacular 17.4% compounded annual growth rate over the last five years, higher than its 6.4% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into Wabtec’s quality of earnings can give us a better understanding of its performance. As we mentioned earlier, Wabtec’s operating margin was flat this quarter but expanded by 6.5 percentage points over the last five years. On top of that, its share count shrank by 10%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Wabtec, its two-year annual EPS growth of 22.6% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.

In Q3, Wabtec reported adjusted EPS of $2.32, up from $2 in the same quarter last year. This print beat analysts’ estimates by 2%. Over the next 12 months, Wall Street expects Wabtec’s full-year EPS of $8.55 to grow 14.3%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Wabtec has shown robust cash profitability, enabling it to comfortably ride out cyclical downturns while investing in plenty of new offerings and returning capital to investors. The company’s free cash flow margin averaged 11.7% over the last five years, quite impressive for an industrials business.

Wabtec’s free cash flow clocked in at $367 million in Q3, equivalent to a 12.7% margin. The company’s cash profitability regressed as it was 5.9 percentage points lower than in the same quarter last year, but we wouldn’t read too much into it because capital expenditures can be seasonal and companies often stockpile inventory in anticipation of higher demand, leading to quarter-to-quarter swings. Long-term trends are more important.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Wabtec has shown solid business quality lately, it historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 7.1%, somewhat low compared to the best industrials companies that consistently pump out 20%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Wabtec’s ROIC has increased over the last few years. its rising ROIC is a good sign and could suggest its competitive advantage or profitable growth opportunities are expanding.

Wabtec reported $528 million of cash and $5.03 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $2.36 billion of EBITDA over the last 12 months, we view Wabtec’s 1.9× net-debt-to-EBITDA ratio as safe. We also see its $196 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Wabtec blew past analysts’ organic revenue expectations this quarter, although reported revenue was just in line. We were also happy its EPS outperformed Wall Street’s estimates. Looking ahead, management slightly raised its full-year EPS guidance. Overall, this print had some key positives. The stock traded up 1.8% to $201.49 immediately following the results.

Updated: December 4, 2025 at 10:04 PM EST

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

There’s plenty to admire about Wabtec. Although its revenue growth was mediocre over the last five years, its growth over the next 12 months is expected to be higher. And while Wabtec’s relatively low ROIC suggests management has struggled to find compelling investment opportunities, its expanding operating margin shows the business has become more efficient. On top of that, its spectacular EPS growth over the last five years shows its profits are trickling down to shareholders.

Wabtec’s P/E ratio based on the next 12 months is 21.8x. Looking at the industrials space right now, Wabtec trades at a compelling valuation. If you’re a fan of the business and management team, now is a good time to scoop up some shares.

Wall Street analysts have a consensus one-year price target of $233.82 on the company (compared to the current share price of $214.34), implying they see 9.1% upside in buying Wabtec in the short term.