Wabtec (WAB): Is Now the Time to Buy After Strong Q3 Earnings?

In the third quarter of 2025, Wabtec (WAB) delivered a performance that has sparked renewed interest among investors. The company reported revenue of $2.89 billion, matching Wall Street estimates and reflecting an 8.4% year-over-year increase according to an Indexbox report. Non-GAAP earnings per share (EPS) of $2.32 exceeded analyst forecasts by 2%, while the firm raised its full-year adjusted EPS guidance to $8.95 at the midpoint-a 1.1% upward revision, according to a Wabtec investor release. These results, coupled with a robust backlog of $25.58 billion (with the 12-month segment growing 8.4% to $8.267 billion), underscore Wabtec's resilience in a sector marked by both headwinds and tailwinds, as noted in Wabtec's investor release. But does this performance justify a "buy" recommendation at current valuations?

Financial Performance: A Mixed Bag of Strength and Caution

Wabtec's Q3 results highlight its ability to capitalize on long-term trends in the rail and industrial equipment markets. The company's operating margin of 17.0% and adjusted operating margin of 21.0% reflect improved gross margins and disciplined cost management, as Wabtec's investor release shows. This margin stability is critical, as it provides a buffer against inflationary pressures and supply chain disruptions that continue to plague industrial sectors.

However, the revenue growth, while positive, was in line with expectations rather than exceeding them. For context, the company's full-year revenue guidance of $10.925–$11.225 billion implies a modest 8.4% growth rate, which, while consistent with the broader rail equipment market's projected 5.5% CAGR through 2032 according to a rail equipment market analysis, may not excite investors seeking explosive expansion. The 12-month backlog growth of 8.4% is encouraging, but it also raises questions about the sustainability of these orders in a macroeconomic environment where interest rates remain elevated and capital expenditures could face headwinds.

Valuation: A Premium to Peers, but Is It Justified?

Wabtec's valuation metrics currently reflect a premium to both its industrial peers and the broader rail equipment sector. The stock trades at a P/E ratio of 29.3x, significantly above the Machinery industry average of 24.5x and the peer average of 21.8x, according to a Simply Wall St analysis. Meanwhile, its EV/EBITDA multiple of 19.1x is higher than the rail industry's sector average of 12.56x based on valuation multiples and above the broader Damodaran data and PACCAR's 13.7x noted in a Monexa analysis. This valuation gap suggests that investors are paying a premium for Wabtec's perceived growth prospects, but whether this premium is warranted depends on the company's ability to outperform its peers in the coming years.

The PEG ratio-a metric that adjusts for growth-remains elusive in the data, but the EV/EBITDA premium implies that Wabtec's earnings growth must outpace its peers to justify the valuation. For context, the company's raised EPS guidance of $8.95 implies a 18.4% increase from prior forecasts, as noted in Wabtec's investor release, which could support a higher multiple if the market views this growth as durable. However, the rail equipment sector's projected CAGR of 5.5% from the rail equipment market analysis suggests that even strong performers like Wabtec may struggle to sustain double-digit growth in the long term.

Sector Dynamics: Tailwinds and Headwinds in Equal Measure

The rail equipment sector is undergoing a transformation driven by technological innovation and regulatory shifts. Automation, electrification, and smart sensor integration are reshaping operational standards, with autonomous train systems poised to reduce labor costs and enhance safety, as the rail equipment market analysis discusses. Governments worldwide are also tightening safety and emissions regulations, creating a wave of equipment upgrades and replacements that could benefit Wabtec's core markets, according to the same rail equipment market analysis.

Yet, these opportunities come with risks. Supply chain bottlenecks and economic volatility remain persistent challenges, and the sector's reliance on large, capital-intensive projects means that delays or cancellations could weigh on revenue visibility. Additionally, while Wabtec's backlog is robust, the 15.0% growth in its multi-year backlog to $25.577 billion, noted in Wabtec's investor release, must be viewed through the lens of long-term execution risks. If the company fails to convert these orders into cash flow efficiently, the premium valuation could face downward pressure.

The Verdict: Buy, But With Caution

Wabtec's Q3 performance and raised guidance demonstrate its ability to navigate a challenging macroeconomic environment while maintaining margin discipline. The company's backlog strength and exposure to secular trends like electrification and automation position it well for long-term growth. However, the valuation premium-particularly the 29.3x P/E and 19.1x EV/EBITDA-requires careful scrutiny.

For investors with a long-term horizon, Wabtec's stock could be a compelling buy if the company continues to execute on its growth initiatives and maintains its margin resilience. The rail equipment sector's projected expansion to $120 billion by 2032, according to the rail equipment market analysis, provides a tailwind, and Wabtec's leadership in freight and transit segments, as highlighted in Wabtec's investor release, gives it a competitive edge. That said, the current valuation implies a high degree of confidence in Wabtec's ability to outperform peers, and any missteps in execution or macroeconomic deterioration could lead to underperformance.

In short, Wabtec's fundamentals are strong, but the valuation is not without risks. Investors should consider a cautious approach, using dips in the stock price to accumulate shares rather than committing large sums at current levels.