Shares of Wabtec (NYSE:WAB) lost 10.9% in August, according to data provided by S&P Global Market Intelligence, as the rail equipment manufacturer took a short-term hit as it works to simplify its structure following a complex merger. Most of the losses occurred early in the month, with Wabtec shares down more than 20% for the month at one point before gradually clawing back some of the decline.
Wabtec, short for Westinghouse Air Brake Technologies, is in the process of digesting its merger with the locomotive and rail business of General Electric. The deal gave Wabtec considerably more size and scale, but it did create some overhangs for the stock.
Terms of the transaction initially called for GE shareholders to receive 40.2% of Wabtec, and for GE to retain a 9.9% stake in the combination along with receiving $2.9 billion in cash. It was always assumed GE would look to sell the shares, and the company did just that in a series of transactions, including a sale of 20,485,156 shares announced Aug. 9.
The market wasn't able to absorb all of that new liquidity, causing shares of Wabtec to decline in the days following the announcement.
Wabtec and its railroad equipment peers also tend to trade on the outlook for the economy and on global trade expectations. Strong rhetoric from both the U.S. and China early in the month likely contributed to the weakness in Wabtec shares, as railroad operators are seen as less likely to invest in expansion and new equipment when they are facing an uncertain outlook.
A long list of shipping stocks has been volatile as the markets try to determine what will become of the U.S./China trade spat.
Wabtec investors have been on a roller-coaster ride this year, with shares up more than 10% year to date on at least two occasions in 2019 and down by a similar amount twice. And, like a roller coaster, the net result is you've gotten nowhere. Wabtec is up less than 1% year to date, well short of the S&P 500's 19% growth for the year.
The initial results show the GE integration proceeding as planned, with the company accelerating its cost reduction and synergy initiatives. Investors should feel confident that over the long haul, Wabtec over will be one of the most powerful operators in its sector.
The question is how strong will the sector be, given the continued economic uncertainty and a push by railroads to get more out of their existing equipment, which could reduce new equipment spending. As the GE merger haze clears, investors need to watch those factors closely when trying to determine what's around the bend for Wabtec.