Please ensure Javascript is enabled for purposes of website accessibility

Why Shares of Wabtec Fell Today

By Lou Whiteman - Mar 18, 2020 at 4:20PM

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

A recession would cut into railroads' profits, and hurt their suppliers.

What happened

Shares of Westinghouse Air Brake Technologies (WAB 0.35%), or Wabtec, closed down 18.2% on Wednesday, on growing fears the economy is headed toward a recession. If so, the company's railroad customers have tough times ahead, and that is likely to trickle down to their suppliers.

So what

It was already shaping up to be a year of transition for Wabtec, which last year acquired the locomotive business of General Electric to increase its size and scale, while also taking on a challenging integration. Trends in the railroad business, including a push by major operators to move more freight with fewer locomotives, were also weighing on investors heading into 2020.

A rail crossing.

Image source: Getty Images.

The COVID-19 coronavirus pandemic has added a significant complication to Wabtec's internal plans. With the U.S. and key global economies slowing to a standstill to fight the outbreak, economic productivity has come to a screeching halt -- and with it, shipping volumes.

That means lower volumes for railroads, and less need for Wabtec's locomotives and servicing centers. The global nature of this outbreak also is likely to mean less demand overseas, an area where locomotive demand was expected to hold up better in 2020.

Now what

Wabtec is a best-in-class operator, but the company will be unable to escape an impact from the current crisis. It is growing increasingly likely that 2020 will be a lost year for many industrials, Wabtec included, and 2021 could be slow if the U.S. enters a full recession.

The company's shares are now down 46% in the last month. For those with the patience to weather this storm, Wabtec's long-term value proposition is just as strong now as it was two months ago. But given the lack of a near-term catalyst and the challenging conditions the company faced in 2020 even before a pandemic was factored in, patience will definitely be required.

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

Westinghouse Air Brake Technologies Corporation Stock Quote
Westinghouse Air Brake Technologies Corporation
WAB
$85.35 (0.35%) $0.30

*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
332%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/28/2022.

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.