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Bank of America Merrill Lynch Upgraded WABCO to ‘Buy’

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Price movement

WABCO Holdings (WBC) has a market cap of $5.7 billion. It rose by 0.20%. It closed at $100.38 per share as of March 14, 2016. The price movement on a weekly, monthly, and YTD (year-to-date) basis is 0.52%, 15.9%, and -1.8%, respectively.

Currently, WABCO is trading 5.3% above its 20-day moving average, 8.8% above its 50-day moving average, and 7.6% below its 200-day moving average.

The ALPS International Sector Dividend Dogs (IDOG) invests 2.1% of its holdings in WABCO. IDOG tracks an equal-weighted index that selects the five companies with the highest dividend yield in each of the ten GICS sectors from international developed markets. IDOG’s YTD price movement was -0.79% as of March 11, 2016.

The market caps of WABCO’s competitors are as follows:

  • General Motors Company (GM) – $48.2 billion
  • PACCAR (PCAR) – $18.9 billion
  • Cummins (CMI) – $18.3 billion
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Bank of America Merrill Lynch upgraded WABCO

Bank of America Merrill Lynch upgraded WABCO’s rating to “buy” from “neutral.”

Performance in fiscal 4Q15 and 2015

WABCO reported fiscal 4Q15 sales of $670.6 million—a fall of 1.3% compared to sales of $679.1 million in fiscal 4Q14. The company’s gross profit fell by 2.2% and its operating income rose by 9.0% in fiscal 4Q15—compared to fiscal 4Q14.

Its net income and EPS (earnings per share) rose to $98.7 million and $1.71, respectively, in fiscal 4Q15—compared to $65.1 million and $1.10, respectively, in fiscal 4Q14.

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Fiscal 2015 results

In fiscal 2015, WABCO reported sales of $2,627.5 million—a fall of 7.8% year-over-year. Its net income and EPS fell to $275.2 million and $4.72, respectively, in fiscal 2015—compared to $291.5 million and $4.81, respectively, in fiscal 2014.

Meanwhile, its cash and cash equivalents and inventories rose by 25.1% and 12.2%, respectively, in fiscal 2015. Its current ratio and debt-to-equity ratio rose to 3.0 and 2.1, respectively, in fiscal 2015—compared to 2.8 and 1.7, respectively, in fiscal 2014.

WABCO’s price-to-earnings and price-to-book value ratios are 21.2x and 7.3x, respectively, as of March 14, 2016.

Projections

The company made the following projections for fiscal 2016:

  • It expects sales growth of 6%–11% in local currencies.
  • On a performance basis, due to the European Commission’s decision in January 2016 against the Belgian tax authority, its guidance includes the performance tax rate of 20%. It reflects certain mitigating actions.
  • On a performance basis, it expects the operating margin to be 13.8%–14.3%. It expects the diluted EPS to be $5.30–$5.80.
  • On a generally accepted accounting principles basis, it expects the operating margin to be 12.7%–13.2%. It expects the diluted EPS to be $3.43–$3.93.
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