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Altra Industrial's Growth Potential Solid, Runs Risks
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We issued an updated research report on Altra Industrial Motion Corp. on Jul 15, 2016. The $741 million company is primarily engaged in the manufacturing and distribution of mechanical power transmission (MPT) components. The company offers solid long-term growth potential, but certain near-term risks might restrict its growth momentum.
Below we briefly discuss the company’s tailwinds and headwinds.
Growth Drivers
Product and End-Market Diversification: Altra Industrial Motion serves a vast clientele in the energy, general industrial, material handling, metals, mining, special machinery, transportation, and turf and garden industries. Also, the company reaps the benefits of a diversified and technologically advanced product portfolio, including clutches & brakes, couplings, and gearing & power transmission components. The combined impact of top-grade products and a vast customer base is likely to boost the company’s organic growth going forward.
Cost-Saving Strategies and Long-Term Targets: Altra Industrial Motion is making concerted efforts to check expenses and align its businesses favorably. As part of the restructuring and cost-saving strategies, the company intends to lower the number of its facilities by 20−30%, as well as improve its supply chain worldwide. These initiatives will be completed by 2018.
Over the long term, the company aims to earn over $1.5 billion in revenues from power transmission business, in a way that predicts its organic growth to be twice the Gross Domestic Product (“GDP”).
Shareholders’ Return: With shareholder interest in mind, Altra Industrial Motion has been consistently rewarding its shareholders with dividend payments and share buybacks. Exiting first-quarter 2016, the company had approximately $12.9 million of authorization left under its $50-million share buyback program approved in May 2014. This is also reflective of the company’s strong cash position.
Near-Term Headwinds
International Operations: This has exposed Altra Industrial Motion to risks arising from foreign currency translations and other geopolitical issues. In first quarter of 2016, forex losses negatively impacted the company’s top-line by 1.8%, and it’s believed such influences might continue in the quarters ahead.
Weak Guidance: For 2016, Altra Industrial Motion anticipates businesses to remain weak for oil & gas end-markets. Annual sales is anticipated to be within $700−$720 million, despite its being below $747 million generated in 2015; while earnings per share is projected in a range of $1.40−$1.50, again, lower than $1.64 earned in 2015.
Other Headwinds: Altra Industrial Motion is also exposed to risks arising from stiff industry rivalry; adverse impacts of rising costs; and, high debt levels; and difficulties or delays in research and development of production and services.
Conclusion
Altra Industrial Motion currently carries a Zacks Rank #3 (Hold). We believe the above-mentioned pros and cons clearly justify the company’s investment value.
However, there are certain stocks in the machinery industry that have been performing better than Altra Industrial Motion, and have gained high investment value. These include Middleby Corp. (MIDD - Free Report) , Nordson Corporation (NDSN - Free Report) and IDEX Corporation (IEX - Free Report) . While both Middleby and Nordson Corporation sport a Zacks Rank #1 (Strong Buy), IDEX Corporation carries a Zacks Rank #2 (Buy).
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Altra Industrial's Growth Potential Solid, Runs Risks
We issued an updated research report on Altra Industrial Motion Corp. on Jul 15, 2016. The $741 million company is primarily engaged in the manufacturing and distribution of mechanical power transmission (MPT) components. The company offers solid long-term growth potential, but certain near-term risks might restrict its growth momentum.
Below we briefly discuss the company’s tailwinds and headwinds.
Growth Drivers
Product and End-Market Diversification: Altra Industrial Motion serves a vast clientele in the energy, general industrial, material handling, metals, mining, special machinery, transportation, and turf and garden industries. Also, the company reaps the benefits of a diversified and technologically advanced product portfolio, including clutches & brakes, couplings, and gearing & power transmission components. The combined impact of top-grade products and a vast customer base is likely to boost the company’s organic growth going forward.
Cost-Saving Strategies and Long-Term Targets: Altra Industrial Motion is making concerted efforts to check expenses and align its businesses favorably. As part of the restructuring and cost-saving strategies, the company intends to lower the number of its facilities by 20−30%, as well as improve its supply chain worldwide. These initiatives will be completed by 2018.
Over the long term, the company aims to earn over $1.5 billion in revenues from power transmission business, in a way that predicts its organic growth to be twice the Gross Domestic Product (“GDP”).
Shareholders’ Return: With shareholder interest in mind, Altra Industrial Motion has been consistently rewarding its shareholders with dividend payments and share buybacks. Exiting first-quarter 2016, the company had approximately $12.9 million of authorization left under its $50-million share buyback program approved in May 2014. This is also reflective of the company’s strong cash position.
Near-Term Headwinds
International Operations: This has exposed Altra Industrial Motion to risks arising from foreign currency translations and other geopolitical issues. In first quarter of 2016, forex losses negatively impacted the company’s top-line by 1.8%, and it’s believed such influences might continue in the quarters ahead.
Weak Guidance: For 2016, Altra Industrial Motion anticipates businesses to remain weak for oil & gas end-markets. Annual sales is anticipated to be within $700−$720 million, despite its being below $747 million generated in 2015; while earnings per share is projected in a range of $1.40−$1.50, again, lower than $1.64 earned in 2015.
Other Headwinds: Altra Industrial Motion is also exposed to risks arising from stiff industry rivalry; adverse impacts of rising costs; and, high debt levels; and difficulties or delays in research and development of production and services.
Conclusion
Altra Industrial Motion currently carries a Zacks Rank #3 (Hold). We believe the above-mentioned pros and cons clearly justify the company’s investment value.
However, there are certain stocks in the machinery industry that have been performing better than Altra Industrial Motion, and have gained high investment value. These include Middleby Corp. (MIDD - Free Report) , Nordson Corporation (NDSN - Free Report) and IDEX Corporation (IEX - Free Report) . While both Middleby and Nordson Corporation sport a Zacks Rank #1 (Strong Buy), IDEX Corporation carries a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>