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Why Is Wabco (WBC) Up 20.6% Since Last Earnings Report?

A month has gone by since the last earnings report for Wabco Holdings (WBC). Shares have added about 20.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Wabco due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

WABCO Earnings Beat Estimates in Q4, Revenues Lag

WABCO’s fourth-quarter 2018 earnings were $2.13 per share, beating the Zacks Consensus Estimate of $1.99. In the year-ago quarter, the company’s earnings were $2.00 per share.

Reportedly, sales declined 2.4% to $911.6 million, which missed the Zacks Consensus Estimate of $964.3 million. During the quarter under review, the company struggled in key global markets, majorly consisting of China, Europe and India, partly offset by growth in the Americas, Japan and Thailand.

During the reported quarter, gross profit was $278.1 million compared with $276.6 million recorded in fourth-quarter 2017. Adjusted operating expenses rose 12.1% year over year to $159.1 million.

2018 Results

In 2018, the company’s performance operating income rose 14.2% year over year to $545.7 million. Performance earnings per share were $7.87, marking an increase from $6.86 in the prior year.

The company’s sales rose 15.9% year over year to $3.8 billion.

Financial Details

WABCO had cash and cash equivalents of $503.8 million as of Dec 31, 2018, compared with $1.14 billion as of Dec 31, 2017. The company’s long-term debt was $845.2 million as of Dec 31, 2018, marking a decline from $1.02 billion as of Dec 31, 2017.

At the end of fourth-quarter 2018, WABCO witnessed net cash inflow of $168 million compared with $194.9 million a year ago.

Share Buyback Update

During the fourth quarter, the company bought 808,964 shares for $90 million. Between June 2011 and December 2018, it repurchased 21,807,366 shares for $1.89 billion in open market transactions.

Further, WABCO is authorized to repurchase shares worth approximately $600 million through Dec 31, 2020, subject to market conditions and regularity approvals. In 2019, it aims to repurchase $400 million worth of shares.

Outlook

For 2019, WABCO anticipates net sales of approximately $3.8-$4 billion and performance earnings per share of $7.60-$8.10. Further, performance operating margin expectation is pegged at 13.4-13.8%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -8.23% due to these changes.

VGM Scores

Currently, Wabco has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Wabco has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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