Market Overview

Analyst: Wabtec A Buy On Potential GE Synergies

Analyst: Wabtec A Buy On Potential GE Synergies

Westinghouse Air Brake Technologies Corp (NYSE: WAB) spiked as much as 7.7 percent Friday on news of talks to acquire General Electric Company (NYSE: GE)’s rail business.

One analyst anticipates additional 13-percent upside.

The Rating

Stifel Nicolaus analyst Michael Baudendistel upgraded Westinghouse Air Brake Technologies Corp. from Hold to Buy and increased the price target from $75 to $99.

The Thesis

Baudendistel sees “strategic rationale” in Westinghouse’s purchase, particularly considering it lends long-sought exposure to international markets. About 43 percent of GE Transportation revenue came from foreign clients last year. (See the analyst's track record here.) 

“The scale and unique capabilities of GE Transportation would make the deal transformative,” Baudendistel said in a note. “The transaction would also get WABTEC into manufacturing newly built locomotives — GE Transportation’s most well-known business — which would be a reasonably natural extension of WABTEC’s current businesses.”

Westinghouse is a significant supplier for GE and could unlock revenue synergies by vertically integrating locomotive units; at the same time, it could concede revenue on components sales to GE competitors, according to Stifel. 

Considering the size of the potential deal, Baudendistel expects Westinghouse would raise equity, although it would be buying GE’s unit at a cyclical low point.

To be sure, Cummins Inc. (NYSE: CMI), Deere & Company (NYSE: DE) or Komatsu could intervene with proposals for a “cleaner transaction," the analyst said. 

“We believe there could be product development synergies with those companies,” the analyst said. “A diesel-electric locomotive is essentially a high-horsepower engine built for a specific purpose.”

Price Action

At the time of publication, Westinghouse was set to open around $87.54.

Related Links:

JPMorgan Dismisses Buffett-GE Buyout Rumor

JPMorgan Lowers General Electric Price Target, Says EPS Guidance Is 'Not A Credible Number'

Latest Ratings for WAB

Jan 2021KeyBancMaintainsOverweight
Dec 2020Morgan StanleyMaintainsOverweight
Nov 2020KeyBancMaintainsOverweight

View More Analyst Ratings for WAB
View the Latest Analyst Ratings


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