February 6, 2013
Wabash National Corp. Buy
Wabash Beats Consensus on Higher Margins WNC
Price: Close $10.85
WNC reported yet another quarter of better-than-expected margins, besting Price Target $16.00
consensus EPS, despite slightly lower-than-expected deliveries. We remain
confident in the WNC story, especially given the strong $660m+ backlog and
Services & Equipment
industry order levels that have been well above our expectations on a season-to-
date basis. WNC also provided an improved outlook with debt paydown and a Jeffrey A. Kauffman
reversal of their tax reserve. Clear sailing ahead. (212) 338-4765
■ WNC reported adjusted EPS of $0.32 vs. consensus of $0.31 and our email@example.com
estimate of $0.33. Revenue was lower than expected as we believe some Sal Vitale
deliveries may have slipped into 2013. However, margins were above our (212) 338-4766
expectations, on better cost control, resulting in stronger-than-consensus EPS firstname.lastname@example.org
performance. Ryan Mueller
■ Margin expansion in front of a large backlog. Gross margin was 13.1%, 80 email@example.com
bps higher than our estimate and 700 bps greater than a year ago. Operating
margin was 7%, 30 bps better than our estimate and 460 bps greater than a year
ago. New Trailer shipments of 45,600 for the year were below prior guidance of
46,000 to 48,000 units which was mitigated by continued strong demand for the Price: Close $10.85
non-trailer products during the quarter. Price Target $16.00
52-Week Range $5.65 - $11.55
■ Healthy Backlog Heading Into 2013. WNC has a 12/31 backlog of $666 Market Capitalization (M) $716.5
million and management expects trailer demand greater than replacement levels. Shares Outstanding (M) 68.4
Avg. Daily Vol. (000) 1,057.0
To that note, we attended the Meritor (MTOR, $4.45, Not Rated) Analyst Dividend $0.00
Day yesterday, and MTOR's view is for North American Trailer Shipments of Dividend Yield 0.0%
255,000 (+4%), in line with the ACT forecast, well above the 230,000 level Assets (M) $388.1
(-6%) in our models, and closer to the season-to-date order levels.
■ WNC's Story Has Legs to Run. We continue to believe that trailer demand will
surprise investors in terms of resilience this year, and WNC continues to improve
margins in excess of expectations. Furthermore, we believe 2013 will be the
year that debt reduction gains momentum, possibly leading to capital return to
shareholders in 2014. We note that WNC has reversed its full valuation reserve
on its Net Operating Losses, which will lead to a higher GAAP tax rate in 2013,
but no material change in cash taxes.
■ Conference Call. February 6, 2013 at 10am ET, 888-771-4371, participant code:
FYE Dec 2012E 2013E 2014E 12
(Curr) (Curr) (Curr)
Q1 (Mar) 0.10A 0.29 - 8
Q2 (Jun) 0.23A 0.37 - 7
Q3 (Sept) 0.30A 0.40 - 6
Q4 (Dec) 0.33 0.37 - 5
Feb-12 May-12 Aug-12 Nov-12 Feb-13
FY EPS 0.95 1.43 1.75 Wabash National Corp.
P/E 11.4x 7.6x 6.2x The Industrial Select Sector Index (ISI)
Important Disclosures regarding Price Target Risks, Valuation Methodology, Regulation Analyst Certification,
Investment Banking, Ratings Definitions, and potential conflicts of interest begin on Page I of the Appendix Section.
800 Shades Creek ParkwaySuite 700Birmingham, AL 35209205-949-3500
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February 6, 2013
See the table below for a detailed comparison of results vs. our forecast.
Wabash National Corporation
Quarterly Comparison of Operating Results
Actual Estimate Actual YOY Analysis Variance: Actual vs. Estimate
4Q11 4Q12e 4Q12 $ Change % Ch. EPS Impact $ Delta % Chg EPS Impact
Commercial Trailer Products 323 302 258 ($65.4) -20.2% ($0.95) ($43.5) -14.4% ($0.61)
Diversified Products 32 136 143 111.1 343.8% 1.62 7.3 5.4% 0.10
Retail & Distribution 36 48 47 10.4 28.7% 0.15 (1.3) -2.7% (0.02)
Intercompany and other (18) (28) (32) (14.3) 79.1% (0.21) (4.0) 14.0% (0.06)
Total Sales 342 457 416 74.1 21.7% 1.08 (41.4) -9.1% (0.58)
Consolidated COGS (321) (401) (362) (40.4) 12.6% (0.59) 39.7 -9.9% 0.56
Consolidated Gross Profits 21 56 54 33.7 163.0% 0.49 (1.7) -3.1% (0.02)
General & Administrative Expenses (9) (20) (14) (5.3) 61.7% (0.08) 6.4 -31.7% 0.09
Selling Expenses (4) (5) (11) (7.5) 205.0% (0.11) (5.9) 112.3% (0.08)
Total Operating Income 8 30 29 20.8 NM 0.30 (1.3) -4.1% (0.02)
Interest Expense (1) (8) (8) (6.8) 715.7% (0.10) 0.5 -6.4% 0.01
Other (Income), Net 0 1 0 0.2 558.3% 0.00 (0.8) NM (0.01)
Pretax Income 7 23 22 14.2 NM 0.21 (1.5) -6.5% (0.02)
Income Taxes (0) (1) 0 0.0 NM 0.00 0.9 NM 0.01
Net Income (Before Pfd. Divs.) 7 22 22 14.2 NM 0.21 (0.6) -2.9% (0.01)
Cumulative Preferred Stock Dividends 0 0 0 0.0 NM 0.00 0.0 NM 0.00
Net Income 7 22 22 14.2 NM 0.21 (0.6) -2.9% (0.01)
Extraordinary Charges 0 0 0 0.0 NM 0.00 (0.2) NM (0.00)
Net Income 7 23 22 14.2 NM 0.21 (0.8) -3.7% (0.01)
Average Diluted Shares Out 68.4 68.4 68.6 0.3 0.4% (0.00) 0.2 0.3% (0.00)
EPS - Operating $0.11 $0.33 $0.32 $0.21 NM $0.21 ($0.01) -3.2% ($0.01)
EPS - Reported $0.11 $0.33 $0.32 $0.21 NM $0.21 ($0.01) -4.0% ($0.01)
Gross Margin 6.0% 12.3% 13.1% 7.0% 0.8%
Incremental Gross Margin 30.7% 45.4% 45.4% 14.8%
G&A as % of Revenue 2.5% 4.4% 3.3% 0.8% -1.1%
Selling as % of Revenue 1.1% 1.2% 2.7% 1.6% 1.5%
Operating Margin 2.5% 6.7% 7.0% 4.6% 0.4%
Incremental Operating Margin 19.1% 28.1% 9.0%
Tax Rate 0.3% 3.7% 0.0% -0.3% -3.7%
Net Margin 2.2% 4.9% 5.2% 3.0% 0.3%
Source: Company reports and Sterne Agee estimates.
February 6, 2013
Wabash National Corporation is one of the largest manufacturers of truck trailers in the country. Headquartered in Lafayette, Indiana,
the company has held a #1 or #2 position in the market for Dry Van trailers, and also has a top 3 position in the market for Refrigerated,
Platform and Dump trailers. The company's roster of key customers is primarily comprised of the largest trucking fleets in the country.
WNC also provides parts and aftermarket support for its products through its dealership network.
Regulation Analyst Certification:
I, Jeffrey A. Kauffman, Sal Vitale and Ryan Mueller, hereby certify the views expressed in this research report accurately reflect my
personal views about the subject security(ies) or issuer(s). I further certify that no part of my compensation was, is, or will be, directly
or indirectly, related to the specific recommendations or views expressed by me in this report.
Sterne, Agee & Leach, Inc. makes a market in the following subject company Wabash National Corp.
Sterne, Agee & Leach, Inc.'s research analysts receive compensation that is based upon various factors, including Sterne, Agee & Leach,
Inc.'s total revenues, a portion of which is generated by investment banking activities.
Sterne Agee & Leach, Inc. expects to receive or intends to seek compensation for investment banking services from the subject company
and/or companies in the next three months.
Price Target Risks & Related Risk Factors:
Investment risks associated with the achievement of the price target include, but are not limited to, a company's failure to achieve
Sterne, Agee & Leach, Inc., earnings and revenue estimates; unforeseen macroeconomic and/or industry events that adversely affect
demand for a company's products or services; product obsolescence; changes in investor sentiment regarding the specific company or
industry; intense and rapidly changing competitive pressures; the continuing development of industry standards; the company's ability
to recruit and retain competent personnel; and adverse market conditions. For a complete discussion of the risk factors that could
affect the market price of a company's shares, refer to the most recent Form 10-Q or 10-K that a company has filed with the Securities
Company Specific Risks:
Risks to our investment thesis and price target are as follows:
Economy. Although we believe some part of our thesis about the truck industry is working in a lackluster economy, a double-dip recession
would delay the magnitudes of the order cycle, and could push the company into financial distress.
Commodity Prices. In the trucking industry, capital expenditures are generally cash intensive in nature, and any rise in commodity
prices such as diesel fuel saps cash that could otherwise go toward CAPEX purchases. As we witnessed this spring, if fuel prices rise
dramatically, plans to begin fleet replacement could be put on hold. In addition, nearly 74% of WNC's expenses are materials related.
The company is not able to hedge wood, aluminum or steel costs effectively, and a spike in any could impair margins.
Methodology for assigning ratings and target prices includes qualitative and quantitative factors including an assessment of industry
size, structure, business trends and overall attractiveness; management effectiveness; competition; visibility; financial condition; and
expected total return, among other factors. These factors are subject to change depending on overall economic conditions or industry
or company-specific occurrences. Sterne, Agee & Leach, Inc., analysts base valuations on a combination of forward looking earnings
multiples, price-to-revenue multiples, and enterprise-value-to-revenue ratios. Sterne, Agee & Leach, Inc., believes this accurately reflects
the strong absolute value of earnings, the strong earnings growth rate, the inherent profitability, and adjusted balance sheet factors.
Additional company-specific valuation methodology is available through Sterne, Agee & Leach, Inc.
Company Specific Valuation:
Valuation on 2012 fundamentals is roughly $16, using a variety of methodologies, ranging from EV/Sales to EV/EBITDA to mid-cycle
P/E. Generally, P/E and EV/EBITDA are the more consistent measures, but given near-term EPS uncertainty, we are also utilizing others
such as EV/Sales.
Valuation on peak cycle implies upside into the low $20s. Discounting that back an extra two years provides a mid- to upper-teen range
over the course of the economic cycle. While it is too early to rely on this valuation at this point, it provides a reference of where this
stock could go if the cycle proves to be regular.
Appendix Section, Page I
February 6, 2013
Definition of Investment Ratings:
BUY: We expect this stock to outperform the industry over the next 12 months.
NEUTRAL: We expect this stock to perform in line with the industry over the next 12 months.
UNDERPERFORM: We expect this stock to underperform the industry over the next 12 months.
RESTRICTED: Restricted list requirements preclude comment.
IB Serv./ Past 12Mos.
Rating Category Count Percent Count Percent
Buy 216 47.79% 19 8.80%
Neutral 220 48.67% 14 6.36%
Underperform 16 3.54% 0 0.00%
ADDITIONAL INFORMATION AVAILABLE UPON REQUEST: Contact Robert Hoehn at 1-212-338-4731.
Opinions expressed are our present opinions only. This material is based upon information that we consider reliable, but we do not
represent that it is accurate or complete, and it should not be relied upon as such. Sterne, Agee & Leach, Inc., its affiliates, or one or
more of its officers, employees, or consultants may, at times, have long or short or options positions in the securities mentioned herein
and may act as principal or agent to buy or sell such securities.
Copyright © 2013 Sterne, Agee & Leach, Inc. All Rights Reserved.
To receive price charts or other disclosures on the companies mentioned in this report, please visit our website at https://
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Appendix Section, Page II
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Agee is one of the largest independent firms in the country. Sterne, Agee & Leach, Inc. is a division of Sterne Agee Group, Inc., which also
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