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    WAB · NYQ · Industrials

    Westinghouse Air Brake Technologies Corporation

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 93.78

    Market price

    USD 280.23

    Implied upside

    -66.5%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    AdjustedReported capital expenditure averages 2.01% of revenue against depreciation of 5.14%. A business cannot depreciate more than it invests indefinitely. Capex has been set to 5.14% of revenue so the forecast is not handed free growth. Override it if the reported figure is right.

    Current EV/EBITDA of 23.2x sits outside a defensible 3-20x band, so the exit multiple is capped at 20.0x. A multiple that far out usually means EBITDA is the wrong denominator for this business.

    Value Per Share

    Perpetuity growth
    USD 93.78-66.5%
    Exit multiple
    USD 273.30-2.5%
    Market price
    USD 280.23

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn1bn2bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 12.3bnUSD 13.5bnUSD 14.9bnUSD 16.4bnUSD 18.1bn+10.1%
    EBITUSD 1.7bnUSD 1.9bnUSD 2.1bnUSD 2.3bnUSD 2.6bn+10.1%
    NOPATUSD 1.4bnUSD 1.5bnUSD 1.7bnUSD 1.8bnUSD 2.0bn+10.1%
    Add depreciation & amortisationUSD 569.8mUSD 627.5mUSD 691.0mUSD 761.0mUSD 838.0m+10.1%
    Less capital expenditureUSD -631.6mUSD -695.5mUSD -765.9mUSD -843.5mUSD -928.9m+10.1%
    Less increase in working capitalUSD 10.1mUSD 11.2mUSD 12.3mUSD 13.5mUSD 14.9m-10.1%
    Free cashflow to firmUSD 1.3bnUSD 1.5bnUSD 1.6bnUSD 1.8bnUSD 1.9bn+10.1%
    Discount factor0.95540.87210.79610.72670.6633-
    Present valueUSD 1.3bnUSD 1.3bnUSD 1.3bnUSD 1.3bnUSD 1.3bn+0.5%
    Present Value Of The ForecastUSD 6.4bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.947Reported 0.921, pulled toward 1.0 (Blume)
    Cost of equity10.21%Risk-free + beta x equity risk premium
    Cost of debt5.00%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 47.3bn89.5% of capital
    Total debtUSD 5.5bn10.5% of capital, book value as a proxy
    Tax rate21.0%Effective, capped at statutory
    WACC9.55%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 93.78

    69% of EV

    Forecast FCFF, final year
    USD 1.9bn
    Capex at depreciation, working capital in reinvestment
    USD 2.0bn
    Less reinvestment at g/ROIC (26.2% of NOPAT)
    USD -530.3m
    Capitalised
    USD 1.5bn
    ROIC (WACC floor)
    9.6%
    Terminal value, undiscounted
    USD 21.7bn
    Terminal value, discounted
    USD 14.4bn
    Enterprise value
    USD 20.8bn
    Less net debt
    USD 4.8bn
    Equity value
    USD 16.0bn

    Exit at 20.0x EBITDA

    Value per shareUSD 273.30

    88% of EV

    Terminal value, undiscounted
    USD 68.0bn
    Terminal value, discounted
    USD 45.1bn
    Enterprise value
    USD 51.5bn
    Less net debt
    USD 4.8bn
    Equity value
    USD 46.8bn

    Spread between methods: 98%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    7.55%126.45127.24128.07128.96129.94
    8.55%107.52108.00108.47108.95109.43
    9.55%92.9593.3793.7894.1994.60
    10.55%81.1881.5381.8982.2582.61
    11.55%71.4671.7772.0872.4072.71

    Outlined: this model. Green text: above today's price of 280.23. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year10.1%35.2%+25.0pp
    EBIT margin14.2%35.6%+21.5pp
    Discount rate9.6%5.0%-4.6pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.