Editor's Note: If you are an institutional investor interested in joining this "Black Book" call (or accessing the materials) and the 2019 rail capital equipment spending outlook email firstname.lastname@example.org.
Since the inflection in freight rail investment spending in 2015, the reset in capital spending has been a steady grind lower. The market may decline much more sharply in 2019. Higher speeds, lower volumes, young fleets, and a lack of regulatory spending sets up an especially painful year for an Industrial market that is still seen by some investors as offering “growth” and “technology.”
While many see WAB’s acquisition of GET as near a cyclical trough, a more accurate analogy is, we think, that the deal is near the start of a twice a century drought. The financials for that transaction have proven hard to pin down, while the forecasts now look highly optimistic.
In Freight, a young fleet and precision railroading are likely to be a negative impact on capital equipment suppliers facing intensifying competition and customers that haven’t posted volume growth in a decade and a half.
We expect WAB to struggle to make $3.50 in 2019; after 4 years of declining earnings, will the market finally ascribe an appropriate multiple, taking WAB shares to the $50-ish level where we have long thought they belonged?