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Why Shares of Wabtec Fell Today

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

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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.

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Westinghouse Air Brake Technologies Corporation Stock Quote
Westinghouse Air Brake Technologies Corporation
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