Should Investors Buy Wabtec Stock Despite Its Higher Valuation?

Core Viewpoint - Wabtec Corporation (WAB) appears to be overvalued based on its forward price-to-sales ratio, trading at a premium compared to the industry average [1][2]. Valuation Metrics - WAB has a forward 12-month price-to-sales ratio (P/S-F12M) of 2.95X, significantly higher than the industry average of 2.07X over the past five years [2]. - The company's P/S-F12M ratio exceeds the median level of 2.06X during the same period, indicating an unattractive valuation [2]. Stock Performance - Wabtec's shares have increased by 10.6% over the past year, outperforming the Zacks Transportation - Equipment and Leasing industry's decline of 13.6% [9]. - However, WAB's performance is less favorable compared to Ryder Corporation (R) within the same timeframe [9]. Operational Challenges - The company faces ongoing supply-chain disruptions, high commodity costs, and labor shortages, which are impacting its operating expenses [5][8]. - Total operating expenses rose by 9.7% year-over-year in 2023, with a further increase of 4.8% projected for 2024 [5]. - In the first half of 2025, total operating expenses increased by 5.3% year-over-year to $892 million [5]. International Exposure - Wabtec has significant operations outside the United States, making it vulnerable to foreign exchange volatility and economic uncertainties [6]. Positive Developments - Wabtec is focusing on new technologies to enhance safety, cost efficiency, and reliability in railroads, which supports the modernization of global rail fleets [12]. - The company is implementing cost-cutting measures and optimizing its product portfolio to improve profitability [13]. - Strong free cash flow generation enables consistent dividend payments and share buybacks, which are expected to boost investor confidence [14]. Earnings Estimates - The Zacks Consensus Estimate for WAB's earnings has been revised upward for the remaining quarters of 2025 and for full-year 2025 and 2026 [15]. - The current estimates for Q1 and Q2 of 2025 are $2.27 and $2.06, respectively, with full-year estimates of $8.89 and $10.01 for 2025 and 2026 [15]. Investment Outlook - The combination of new technology focus, restructuring actions, and shareholder-friendly initiatives has led to WAB's premium valuations, as investors anticipate strong future performance [16]. - The positives surrounding WAB outweigh concerns related to economic and political uncertainties, suggesting that investors may consider adding WAB stock to their portfolios for potential returns [17].