Wabtec rises as analyst says buy on potential GE Transportation deal
Shares of Wabtec (WAB) are on the rise after Stifel analyst Michael Baudendistel upgraded the stock to Buy following a media report saying the company was in discussions to acquire GE Transportation from General Electric (GE).
Also commenting on the deal, Stephens analyst Justin Long told investors the transaction could be a significant catalyst for Wabtec.
POTENTIAL GE TRANSPORTATION SALE
On Friday, Bloomberg reported that General Electric was in talks to sell its century-old locomotive business to rail-equipment maker Wabtec.
The transportation unit could be worth as much as $6.8B in a sale, the report noted, adding that a deal has not been reached and talks may still fall apart. GE may also pursue an initial public offering or other strategic option for the business, sources said.
In a research note to investors, Stifel’s Baudendistel upgraded Wabtec to Buy from Hold, while raising his price target on the stock to $99 from $75, citing Bloomberg’s report on a potential acquisition of GE Transportation.
While acknowledging that a standalone IPO or an acquisition by a machinery company are also possibilities, the analyst argued that a deal would be transformative for Wabtec.
Further, Baudendistel pointed out that he believes there is strategic rationale for the deal and the possibility improves his perspective on the reward-to-risk ratio for the shares. Wabtec would be buying the business at a cyclical low point, he contended.
Additionally, the analyst noted that Wabtec’s recent results have improved on growth in the aftermarket revenue, an area that held back 2017 results.
‘SIGNIFICANT’ CATALYST FOR WABTEC
Meanwhile, Stephens’ Long told investors in a research of his own this morning that he is “a bit surprised” by the news given the potential size of the transaction, which he estimates to be around $8B.
That said, the analyst noted he thinks it would be a “great strategic fit” primarily due to GE Transportation’s services business that features technologically advanced rail-related products.
Additionally, Long believes the deal could be “highly accretive” to Wabtec earnings per share, with his “best guess” putting the deal probability at over 50%. The analyst reiterated an Overweight rating on Wabtec’s shares.
In Monday’s trading, shares of Wabtec have gained almost 2% to $88.98, while General Electric’s stock has advanced about 1% to $14.62.
To read timely stories similar to this, along with money making trade ideas, sign up for a membership to Stockwinners.
This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility.