It was a bad day for Wabtec (WAB) shareholders. But a good day for Hedgeye Industrials analyst Jay Van Sciver who has been advising subscribers to short the company.
Shares of the freight and transit equipment maker tumbled today as earnings underwhelmed investor expectations and the company cut 2016 guidance. Revenue is now expected to be down -12% in 2016 versus -10% previously estimated. Earnings per share guidance was cut to a range of $4.00 to $4.04 versus $4.00 to $4.20.
The company also punted the completion of the much-anticipated Faiveley deal into the future, perhaps sometime in the fourth quarter or first quarter of 2017. This is important. The bull story largely rests on this acquisition. But as Hedgeye Industrials analyst Jay Van Sciver wrote in our original stock report sent to Investing Ideas subscribers in September 2015:
"The driver for getting this deal done ('why now?') may be the need to plug a hole in the freight rail outlook. In that sense, it may be a sign of weakness - acquisitive industrials push acquisitions when they need them."
Apparently, with the deal stalled, investors were forced to face facts on this challenging environment for the freight industry. Specifically:
- Wabtec's high-margin aftermarket business is continuing to deteriorate as equipment continues to be pulled into storage; add in...
- Weak rail volumes
- Poor railcar and locomotive orders
Bottom Line?
This short call has room to run.
