October 28, 2008 - Westinghouse Air Brake Technologies (does business as Wabtec) (WAB-NYSE) provides technology-based equipment and services for the rail industry. The company operates in two segments, Freight Group and Transit Group. The Freight Group manufactures and services components for new and existing freight cars and locomotives, builds new switcher locomotives, and rebuilds freight locomotives.

The Transit Group manufactures and services components for new and existing passenger transit vehicles, typically subway cars and buses, builds new commuter locomotives, and refurbishes subway cars. The company's principal component product lines include braking equipment and related components; brake assemblies; draft gears, couplers, and slack adjusters; air compressors and dryers; railway electronics, including train control systems, event recorders, monitoring equipment, and end of train devices; friction products, including brake shoes; rail and bus door assemblies; and heat exchangers and cooling systems.

Its customers include railroads in North America, as well as in the United Kingdom, rest of Europe, Australia, South Africa, and India; manufacturers of transportation equipment, such as locomotives, freight cars, subway vehicles, and buses; lessors; and passenger transit authorities, primarily in North America. The company was founded in 1869 and is headquartered in Wilmerding, Pennsylvania.

This stock recently hit an all-time high of $60.75 on September 2. That was up from $28.72 for a 52 week low on January 10 of this year. Now it's back down to $38 a share, closer to its low than the record high set only 6 weeks ago. Have things turned that bad in such a short period of time or is this stock a victim of fear that's gripping most investors who only want to be out of the market, no matter what the prospects for the company?
Here's what we know.

Last week, on October 22, the company announced higher expectations for earnings in 2008, stating that a strong transit market is still rolling. It recorded 68 cents a share in earnings for the 3rd quarter, ahead of analysts' estimates of 65 cents a share. Revenues for the same quarter were $396 million against an estimate of $385.1 million. Management raised earnings guidance for all of 2008 from $2.65 to $2.66 to $2.70 and sees 2008 sales up 13% to 15% vs. previous forecast of 12% to 14%. Furthermore, it expects to benefit from the passenger train market, which has been boosted by recently approved legislation to improve rail services and safety, and a rise in federal spending. The company posted better-than-expected third-quarter results and got almost half its total revenue from the passenger transport market during the period. This helped offset weakness in the freight transport segment that was weighed down by slowing economic conditions.

In July high-priced air and road transport due to costlier oil drove a record 2.8 million people to use the U.S. passenger rail network Amtrak, the largest number in its history. Earlier this month the U.S. Senate approved legislation for improving passenger rails that includes $13 billion for Amtrak over five years and to fund industry safety measures in the backdrop of a train crash in September that killed 25 people.

"This legislation has several important features ofinterest to Wabtec. We expect the bill to have a positive impact on some of our strategic growth initiatives," Chief Executive Albert Neupaver said on a conference call.

The bill benefits two of Wabtec's technologies that help control trains better -- positive train control and electronic control pneumatic (ECP) braking.

Wabtec estimates that 75 percent of road locomotives, and all commuter locomotives will require positive train control, which is expected to add revenue of $200 million to $400 million over the next five to seven years. Total revenues last year were $1.36 billion.

More numbers: Market cap is $1.82 billion. Forward P/E is 12.25. Price to Book is 2.67. Operating margin was 13.91% for the last 12 months with a profit margin of 8.35%. There's $241.7 million in cash. That's $5 a share. Book value is $14. Beta is .82. There's a tiny annual dividend of 4 cents a share. Earnings for 2009 are forecast at $3.09.

There's no question more people either have to or want to take more efficient transportation to work or on vacation. With airlines raising prices for fuel costs and gasoline still relatively high, expect the recent surge in passengers on trains and buses to continue for a while. Though with oil coming down, that will entice drivers back in their cars, and airlines to possibly lower ticket prices. Still there is new legislation that will require more controls put on all trains. And if the economy begins to pick up, freight traffic will as well. This stock is definitely worth more of most investors' time.

- Company Web site: www.wabtec.com

- Ted Allrich