Wabtec (WAB) continues to grow

Implications: Standard Car Truck will be a great addition to the Wabtec family of companies. There is no overlap in product lines and most of the products offered by Standard will compliment those already made at Wabtec. Moreover, there are potential synergies that may enable the company to grow organically after the initial synthetic growth to their corporate operations is achieved. Wabtec has steadily grown both through increases in market share and through acquisitions over the past several years and this recent purchase appears to be a continuation of a well planned strategy.

Analysis:

Railcars and locomotives are made of dozens of components that manufacturers buy from industry suppliers. The more products a supplier produces, the larger the package of individual items they can offer the OEM’s. Most of the products that Standard Car Truck will bring to Wabtec will fit nicely into the package that Wabtec already offers to the railcar and locomotive manufacturers and some gain in market share for these products should be possible. Like Amsted Industries however, there is some concern about market domination and the deal will have to be scrutinized by the DOJ for antitrust problems; but as with Amsted, there are good reasons for the merger to be approved.

 

Besides the truck (railcar wheel assembly) stabilization components, Standard Car Truck licenses its truck designs to other cast parts manufactures in the US and around the world. While the company does not produce the major truck castings such as bolsters and side frames in the US, it does have manufacturing facilities in China for these products. The new company may one day compete with Amsted Industries which licenses some of its design and which currently enjoys an 80%+ market share for the latter products in the US. No other company is currently able to challenge Amsted in this market.

 

There is expected to be some consolidation in the railcar manufacturing industry and it will be matched by some consolidation in the suppliers. The move by Wabtec, when viewed in this context, is a natural anticipation of these events