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Barclays Upgrades Wabco Holdings to ‘Overweight’

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Price movement

Wabco Holdings (WBC) has a market cap of $5.6 billion. The stock rose 0.21% to close at $99.37 per share on October 24, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were -6.3%, -8.6%, and -2.8%, respectively, on the same day. WBC is trading 8.9% below its 20-day moving average, 7.4% below its 50-day moving average, and 2.1% below its 200-day moving average.

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Related ETF and peers

The Schwab US Mid-Cap ETF (SCHM) invests 0.21% of its holdings in Wabco. The ETF tracks a market-cap-weighted index of mid-cap stocks in the Dow Jones US Total Stock Market Index. The YTD price movement of SCHM was 8.0% on October 24.

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

  • PACCAR (PCAR): $19.8 billion
  • Cummins (CMI): $21.4 billion

Wabco’s rating

On October 24, 2016, Barclays upgraded Wabco Holdings’ rating to “overweight” from “equal-weight” and also set the stock’s price target at $107.0 per share.

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Performance of Wabco in 3Q16

Wabco Holdings reported 3Q16 sales of $675.4 million, a rise of 4.9% compared to $643.6 million in 3Q15. The company’s gross profit margin and operating margin rose 590 basis points and 730 basis points, respectively, in 3Q16 compared to the prior year’s period.

Its net income and EPS (earnings per share) rose to $98.1 million and $1.76, respectively, in 3Q16 compared to $38.8 million and $0.67, respectively, in 3Q15. It reported EPS on a performance basis of $1.54 in 3Q16, a rise of 10.8% compared to 3Q15.

WBC’s cash and cash equivalents and inventories rose 37.8% and 22.8%, respectively, in 3Q16 compared to 4Q15. Its current ratio and debt-to-equity ratios rose to 3.02x and 2.5x, respectively, in 3Q16 compared to 2.98x and 2.1x, respectively, in 4Q15.

During 3Q16, the company repurchased 595,000 shares worth $60.7 million. It authorized repurchases of shares up to $63.3 million through December 31, 2016.

Projections

The company has made the following projections for fiscal 2016:

  • sales of $2.80 billion–$2.83 billion
  • sales growth of 7.5%–8.5% in local currencies
  • operating margin of 13.5%–13.8% and diluted EPS of $5.75–$5.85 on a performance basis
  • operating margin of 12.3%–12.6% and diluted EPS of $4.21–$4.31 on a reported basis

This guidance includes non-cash tax expenses due to the European Commission’s decision in January 2016 against the Belgian tax authority.

In the next part, we’ll take a look at GoPro (GPRO).

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