Astec Industries Richly Priced

Astec Industries, Inc. (ASTE) reported 2Q08 EPS of $0.93, slightly below our estimate of $0.95 but up 12% year-over-year, primarily led by a 22.7% increase in sales attributable to a weak dollar resulting in higher international sales, market acceptance of new products, improved market share, increased sales of recycling equipment and pricing increases.

The company’s commitment to research and development has led to several new product launches and double-digit sales growth. This, in conjunction with strong international sales growth, should drive 2008 EPS growth of 12.3%. While the fundamental story is positive, we reiterate our Hold recommendation on ASTE due to valuation.

Amid a weakening U.S. dollar and the ramp-up of the overseas sales force, we expect international sales to grow in relative importance to its overall business, as the domestic economy decelerates into 2008 and more than offset any potential downturn in domestic spending.

We are forecasting double-digit international sales growth for the foreseeable future. Also, the management stated that it remains focused on acquisitions and plans to continue to diversify into markets that can apply its equipments and to markets that are counter-cyclic to the infrastructure business. On August 5, the company announced that it has entered into an agreement to acquire Dillman Equipment, Inc., a manufacturer of asphalt plant equipment.

Despite the positive factors, we have a few concerns including the potential weakening of asphalt demand. Additionally, the strengthening global economy has pushed up prices of steel, used in manufacturing Astec’s equipments.

Read the full analyst report on ASTE

Read the full analyst report on ASTE