Westinghouse Air Brake Technologies Corp (WAB)

Conclusion

Westinghouse Air Brake Technologies Corporation makes locomotives, braking systems, rail electronics and maintenance services for freight rail and passenger transit. At a price of 298.19 USD on 2026-11-09, the market capitalisation is 50.0 billion USD.

The verdict is overvalued. The fair value band runs from 190.01 to 285.01 USD with a midpoint of 237.51 USD, giving a margin of safety of -20.4% at the current price. The discounted cash flow gives 261.18 USD per share at a discount rate of 9.52%, and the fair value from historical multiples is 213.84 USD. Today's P/E of 36.6 compares with a ten-year median of 31.0, and EV/EBITDA of 22.5 with a median of 16.9. The reverse DCF implies growth of 12.0% a year, while revenue grew 8.1% a year over five years and free cash flow per share grew 20.8% a year over the same period.

What holds the case up is cash generation: free cash flow conversion is 130.3% on a trailing basis, and the Altman Z-score is 3.70. What would break it is returns that only just cover the cost of capital, with ROIC at 8.8% against a WACC of 8.8%, and a price to book of 4.4 against a ten-year median of 2.4. A lower growth rate than the price implies would also hurt, since the reverse DCF requires 12.0% growth.

Financial health

Financial strength is yellow: the Altman Z-score of 3.70 is good, but net debt to EBITDA of 2.5, interest coverage of 7.1 and a current ratio of 1.10 are only neutral. The quick ratio is 0.50 and debt to equity is 0.60. Insolvency risk: low, about 0.3% by the estimate of the Ohlson model over one to two years. The Altman zone is safe. Debt has fallen 2.6% a year over five years as a share of revenue growth, which keeps the balance sheet manageable. Liquidity is the thinnest point, because the company holds only half a unit of quick assets for each unit of current liabilities.

Earnings quality

Earnings quality is green, supported by free cash flow conversion of 141.1% over five years and an accrual ratio of -2.9%, which indicates that reported earnings are backed by cash. Stock-based compensation is 0.8% of revenue, and free cash flow after it is 1.69 billion USD on a trailing basis. The share count fell at a compound rate of 2.1% over five years, which points to buybacks. The Piotroski score is 4 out of 9. The Beneish M-score is not available. The company beat earnings expectations in 7 of the last 8 quarters, with an average surprise of 4.1%. Analysts raised current-year estimates by 1.3% over 90 days, with 10 upward revisions and no downward ones in the last 30 days.

Profitability

Profitability is green. The gross margin of 35.0% is above its ten-year median of 30.3%, the operating margin of 17.3% is above 11.6%, and the net margin of 11.2% is above 7.4%. The operating margin stability measure stands at 21.4%. ROIC is 8.8%, while WACC is 8.8%, and the ROIC minus WACC value is -0.02%, which is neutral. The five-year median ROIC is 7.0%. Return on equity of 12.0% is flattered by leverage: the DuPont split for 2025 shows a net margin of 10.5%, an asset turnover of 0.51 and an equity multiplier of 1.98. Most of the return therefore comes from margins, not from using the balance sheet more heavily.

Growth

Growth is green. Revenue compounded at 10.1% over three years, 8.1% over five years and 12.9% over ten years. Earnings per share compounded at 25.5% over three years and 25.8% over five years, but only 5.2% over ten years. Free cash flow per share compounded at 21.7% over three years and 20.8% over five years. Revenue grew in 8 of the last 10 years. The next-year earnings estimate implies growth of 14.6%, and analysts raised it by 1.7% over 90 days, with 3 upward revisions and no downward ones.

Valuation

Valuation is red. Against their ten-year medians, the P/E of 36.6 is 17.9% higher than its median of 31.0, EV/EBITDA of 22.5 is 33.6% higher than 16.9, and price to free cash flow of 28.1 is 29.1% higher than 21.7. Price to sales of 4.1 is 77.4% higher than 2.3, and price to book of 4.4 is 81.8% higher than 2.4. The discounted cash flow gives 261.18 USD per share at a discount rate of 9.52%, with 57.3% of its value in the terminal period. The reverse DCF implies growth of 12.0%, which compares with revenue growth of 8.1% and free cash flow per share growth of 20.8% over five years. The fair value band is an order of magnitude built on fixed assumptions, a 5% equity risk premium and capped growth, not a price target. The dividend yield is 0.4% and the payout on free cash flow is 11.3%.

Risks

The main risk is valuation: at 298.19 USD the price sits above the fair value band's midpoint of 237.51 USD, and the multiples are well above their history. A slowdown in growth would test that premium, because the reverse DCF already requires 12.0% a year. Returns on capital are a second risk: with ROIC at 8.8% against a WACC of 8.8%, any fall in margins would push returns below the cost of capital. Thin liquidity, with a quick ratio of 0.50, and leverage of 2.5 times net debt to EBITDA leave less room for a downturn. The Beneish M-score is not available. This analysis has no debt maturity schedule and no revenue by segment, so refinancing risk and the performance of the Freight and Transit segments cannot be assessed.