Top Picks 2016: Wabtec
01/25/2016 7:00 am EST
Our Top Pick for growth investors for 2016 is one of the world's largest providers of technology-based equipment and services for the large and growing global rail industry, suggests Ingrid Hendershot, money manager and editor of Hendershot Investments.
Wabtec (WAB) holds approximately a 50% market share in North America for their primary braking-related equipment. Its goal is to average double-digit EPS growth through the business cycle.
Over the last five years, sales have grown at a 19% annual rate with net income chugging even faster at a 30% annual growth rate. Free cash flow has compounded at a 29% annual rate over the last five years.
Management uses its growing cash flows to reinvest in its business, make strategic acquisitions, increase the dividend, and repurchase shares.
Wabtec's dividend has compounded at a 78% annual rate over the last five years. With a low payout ratio, the track for future dividend increases is long.
Wabtec recently increased its authorization for share repurchases to $350 million. Strategic, selective acquisitions in core or adjacent markets have and should continue to represent about half of the company's growth over the long-term.
Wabtec recently signed an agreement to acquire Faiveley Transport, a leading global provider of value-added, integrated systems and service for the railway industry with annual sales of about $1.2 billion.
Long-term investors may want to hop aboard Wabtec, a high quality market leader in a $100 billion rail industry generating double-digit growth through effective management and a successful acquisition strategy. Buy.