By Stockpickr Guest Columnist Glen Bradford

William Kassling is sitting in a prime position to take advantage of the restructuring of the transportation industry as the world heads into the next phase of the global energy crisis.

Kassling, a 1967 graduate of Purdue University, is chairman of Wabtec (WAB), a $1.36 billion company involved in manufacturing railroad value-added products. He is also one of the most interesting men I have ever talked to.

But first, the numbers.

In the past five years, Wabtec has taken its return on equity from 10% to 20%, its profit margins from 3% to 8% and its operating margins from 7% to 14%. Its market cap is currently $2.83 billion, which I think is low. I think that this company should have a market cap of around $3.63 billion because it is growing at around 20% a year, and management is doing a great job of reinvesting shareholder equity. The adjustment of the cap increases my estimated true value of its share price at $75, which is higher than its current price of about $57.

Wabtec is not trading at as big of a discount as the rest of my companies, but I really like the growth potential. I've worked with General Electric (GE) within its supply chain for a couple of years, and Wabtec sounds promising.

Here is why. At Wabtec, the management team's main focal drive is lean manufacturing. "Improving quality and efficiency without spending capital" is done by "outsmarting the production process by being creative," Kassling told me during a quick interview and presentation last week. "The team creates the culture of the company to make ... great strides in quality and productivity improvement."

Kassling understands the difficulty in implementing Toyota's Lean Manufacturing Processes. He knows that higher efficiencies mean fewer jobs for the production worker. However, he is countering that effect by planning to expand the company and thus create more jobs. He is able to operate this way because Wabtec successfully achieves employee buy-in. Strategically, Kassling has teams of individuals that overhaul production processes in a matter of weeks, getting everyone involved, and making production processes more efficient and higher quality. In addition, Kassling's management team spends a great deal of time evaluating acquisitions with an eye focused clearly on payback.

Realizing extraordinary results in "bummer companies" is what Kassling does best.

But the key to most success is management, and Kassling is very strong in that department. He has met challenges in the past. Kassling got into Wabtec when the company was so bad that it wasn't even sellable. Now he sits on the boards of Parker Hannifin Corporation (PH), the Pittsburgh Penguins and SmartOps, among others.

The Bottom Line: Kassling is the turnaround king. There's no magic here, just common sense and determination. I asked him for the three largest sources of growth for Wabtec. His reply was:

1. International Growth: There's been a huge push recently to push products as hard as Wabtec has been pushing in North America in the Eastern Hemisphere.

2. Sales of Aftermarket Products: Customers are enrolling in plans for assistance and follow ups after the products are sold.

3. Technology: Wabtec is involved in helping implement newer railroad technologies

With the expected growth of the rails as an efficient method of transportation and under the guidance of Kassling, Wabtec looks like a nice long-term investment that should exceed the general market in the near and distant future.

Disclaimer: I own Wabtec

Posted on Aug. 25, 2008