Global Digital And Locomotive Orders Will Drive Rail Progress

Key Takeaways

• Global demand for locomotives and digital technologies supports revenue and margin growth through investments in fuel efficiency and safety.
  
• Strategic agreements and orders enhance earnings visibility and support future growth amidst strong international market momentum.
  
• Economic uncertainty and cautious spending may limit growth opportunities, impacting Wabtec's revenue and margins, especially with North American market challenges.

Catalysts

Provides technology-based locomotives, equipment, systems, and services for the freight rail and passenger transit industries worldwide.

• Significant opportunities across global markets in demand for new locomotives and digital technologies are expected to drive revenue growth, particularly as customers invest in solutions for fuel efficiency and safety.
  
• Strong momentum and profitability in international markets, supported by a growing installed base and urban infrastructure investments, are likely to enhance margins and earnings.
  
• The international pipeline of opportunities remains robust, which is expected to continue supporting revenue growth and potentially higher margins than in North America.
  
• The focus on proactive cost controls and operational efficiencies in response to economic uncertainty is anticipated to protect and potentially enhance net margins.
  
• Strategic agreements and new orders, such as the $300 million service agreement in Kazakhstan and significant orders in North America and the APAC region, are expected to drive future revenue growth and improve earnings visibility.

Westinghouse Air Brake Technologies Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Westinghouse Air Brake Technologies's revenue will grow by 4.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 10.1% today to 13.6% in 3 years time.
• Analysts expect earnings to reach $1.6 billion (and earnings per share of $9.9) by about April 2028, up from $1.1 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $1.4 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 24.5x on those 2028 earnings, down from 27.9x today. This future PE is greater than the current PE for the US Machinery industry at 19.9x.
• Analysts expect the number of shares outstanding to decline by 3.14% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.34%, as per the Simply Wall St company report.

Westinghouse Air Brake Technologies Future Earnings Per Share Growth

Risks

• Wabtec's cautious approach to the remainder of 2025, due to an uncertain economic environment, might lead to conservative spending and investment, potentially impacting revenue and net margins negatively.
  
• Concerns about North American markets, including mixed freight business metrics and flat locomotive fleets, present a risk to revenue growth in this region.
  
• The anticipated decline in North American railcar production by 17% in 2025 could negatively affect both revenue and margins from this market.
  
• Tariff activities and trade uncertainties, particularly with North America, create an unpredictable cost environment that could pressure gross margins and earnings if not effectively managed.
  
• Wabtec's defensive spending posture and cost control measures in response to economic uncertainty could limit strategic investments in growth areas, potentially impacting long-term earnings and revenue.

Valuation

• The analysts have a consensus price target of $208.749 for Westinghouse Air Brake Technologies based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $240.0, and the most bearish reporting a price target of just $175.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $12.0 billion, earnings will come to $1.6 billion, and it would be trading on a PE ratio of 24.5x, assuming you use a discount rate of 7.3%.
  
• Given the current share price of $171.76, the analyst price target of $208.75 is 17.7% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.