Westinghouse Air Brake Technologies CorporationWABNYSE

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DCF Valuation

DCF Valuation Summary

Hold

Fair Value: $244.12 per share(market-calibrated)

-6.2%

Upside to Fair Value

Current

$260.20

Pure Model

$241.12

Fair Value

$244.12

Bull Case

$290.91

Bear Case

$195.50

Market Reality Check

Model Terminal Growth

2.25%

Market-Implied Growth

3.92%

Calibrated Growth

2.50%

Fair value uses 85% model / 15% market-implied terminal growth. Pure model: $241.12.

What's Driving This Ratingfor WAB

✓

CapEx already efficient

CapEx at 1.67% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

✓

Premium margins already priced in

EBIT margin of 22.89% is already well above sector average. The model holds this level — there's limited room for margin expansion to drive upside. Valuation depends primarily on revenue growth.

⚠

Analyst growth decelerates sharply

Revenue growth drops from 10.13% in Year 1 to 2.25% by Year 5 (per analyst consensus). This growth deceleration is a key reason the model may undervalue the stock if growth re-accelerates.

🎯

Market pricing in higher long-term growth

To justify $260.20, the market implies 3.92% perpetual growth — 167bps above the model's 2.25%. This suggests the market sees additional growth catalysts (AI, new products, market expansion) not captured in analyst estimates.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 71.32% indicates efficient cash generation. FCF reaches $3.0B by Year 10 (19.27% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.01

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)9.07%

Cost of Debt

Pre-tax Cost of Debt3.63%

Tax Rate25.69%

After-tax Cost of Debt2.70%

Equity Weight (E/V)88.90%

Debt Weight (D/V)11.10%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (88.90% × 9.07%) + (11.10% × 2.70%)

= 8.36%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$12.3B	$13.9B	$14.0B	$14.6B	$15.6B
EBIT	$2.8B	$3.2B	$3.2B	$3.3B	$3.6B
Tax	$723M	$817M	$821M	$858M	$917M
NOPAT	$2.1B	$2.4B	$2.4B	$2.5B	$2.7B
+ Depreciation	$507M	$573M	$576M	$602M	$644M
- Capex	$205M	$232M	$233M	$244M	$260M
- Δ NWC	$102M	$77M	$28M	$29M	$31M
Free Cash Flow	$2.3B	$2.6B	$2.7B	$2.8B	$3.0B
Discount Factor	0.923	0.786	0.669	0.570	0.448
Present Value	$2.1B	$2.1B	$1.8B	$1.6B	$1.3B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$3.0B

Terminal Growth Rate2.25%

WACC8.36%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$50.3B

PV of Terminal Value$22.5B

Exit Multiple Method

Year 10 EBITDA$4.2B

Exit Multiple (EV/EBITDA)18.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$75.8B

PV of Terminal Value$34.0B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$17.6B

PV of Terminal Value$22.5B

Enterprise Value$40.1B

(-) Net Debt$4.8B

Equity Value$35.4B

Shares Outstanding171M

Price per Share$207.55

Exit Multiple Method

PV of Projected FCFs$17.6B

PV of Terminal Value$34.0B

Enterprise Value$51.6B

(-) Net Debt$4.8B

Equity Value$46.8B

Shares Outstanding171M

Price per Share$274.70

Pure Model Fair Value

$241.12

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.25%	1.75%	2.25%	2.75%	3.25%
6.36%	$300.06	$310.80	$324.14	$341.18	$363.70
7.36%	$261.51	$268.29	$276.40	$286.27	$298.53
8.36%	$231.28	$235.83	$241.12	$247.36	$254.82
9.36%	$206.62	$209.81	$213.45	$217.64	$222.51
10.36%	$185.95	$188.26	$190.86	$193.80	$197.15

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$195.50

-24.9% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 1.27

Base Case

$241.12

-7.3% vs current

• Analyst consensus
• Terminal growth: 2.3%
• Beta: 1.01

Bull Case

$290.91

11.8% vs current

• +25% vs analyst consensus
• Terminal growth: 2.8%
• Beta: 0.86

Key Assumptions & Drivers• Industrials Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth10.13%

Year 3 Revenue Growth6.54%

Year 5 Revenue Growth2.25%

Year 7 Revenue Growth2.25%

Year 10 Revenue Growth2.25%

Terminal Growth Rate2.25%

Margin & Efficiency

Current EBIT Margin22.89%

Tax Rate25.69%

Historical Capex / Rev1.67%

NWC / Revenue9.00%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 18x EV/EBITDA (Industrials sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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