Please ensure Javascript is enabled for purposes of website accessibility

Why Wabco Holdings Lost 11.6% in December

By Lou Whiteman - Updated Apr 14, 2019 at 10:15PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Trade tensions and worries about a cyclical peak in trucking are causing investors to hit the exit ramp.

Check out the latest Wabco Holdings earnings call transcript.

What happened

Truck component manufacturer Wabco Holdings (WBC) dropped 11.6% in December, according to data provided by S&P Global Market Intelligence, on investor fears that the global commercial vehicle cycle has hit a peak. The December decline reversed an upward trend in the shares coming out of the company's third-quarter earnings, driving the shares down 25.2% for the full year.

So what

Wabco is a supplier of electronic, mechanical, electro-mechanical, and aerodynamic products primarily for commercial vehicles, and due to its strong engineering reputation, is expected to benefit from the long-term trend toward smarter more electric vehicles. The company early in December signed a $950 million, eight-year agreement with an unnamed commercial vehicle manufacturer to provide driver assistance systems and other technologies, and in November signed a deal with Hyundai Motor Co. to provide technologies to medium-duty trucks.

Wabco's electrified trailer demonstration graphic.

Wabco hopes to be a major player in the trend toward vehicle electrification. Image source: Wabco Holdings.

While that's great for the future, the near-term outlook is not so rosy. Wabco in September lowered 2018 guidance due to what it termed "intensification of geopolitical dynamics," namely the trade wars, and the shares in December were subject to a number of downgrades because of concerns that trucks are at a global cyclical peak and it might be a while before the company regains its momentum.

Wabco generates only about one-fifth of its revenue from North America, and with significant exposure to China and a presence in other emerging markets including Russia and Turkey, its results could be subject to volatility in the quarters to come if trade wars continue and global economies slow.

Now what

Wabco, a one-time Berkshire Hathaway holding, is an interesting long-term investment for those looking for exposure to important trends including electric vehicles, better fuel efficiency, and down the line, autonomous and connective vehicles. But given the macroeconomic trends, it appears unlikely a bet on Wabco will pay off handsomely in 2019.


Wabco EV to EBITDA (TTM) data by YCharts

The company today trades at an enterprise value of about 5.6 times EBITDA (earnings before interest, taxes, depreciation, and amortization), which is about as cheap as it has been since the 2008-2009 recession. For an investor with a long time horizon, the recent drop provides an interesting entry point. However, make sure you understand going in that this is not going to be a short trip.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

WABCO Holdings Inc. Stock Quote
WABCO Holdings Inc.

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/03/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.