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Here's Why You Must Hold on to Altra Industrial (AIMC) Stock
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We issued an updated research report on Altra Industrial Motion Corporation on Feb 26. Strengthening of the end markets, focus on cost control and buyout gains are likely to benefit the company in the quarters ahead. However, industry competition, rising costs and expenses remain its prime concerns.
The stock carries a Zacks Rank #3 (Hold). Its market capitalization is approximately $1.3 billion.
Altra Industrial’s financial performance was better than expected in three of the last four quarters and below expectations in one quarter. Average earnings surprise was a positive 11.13%. The Zacks Consensus Estimate for current-year earnings is pegged at $2.44 per share, representing 5.2% growth from the tally a month ago.
Below we briefly discuss the company’s potential growth drivers and possible headwinds.
Factors Favoring Altra Industrial
Long-Term Growth Potential Solid: Altra Industrial’s focus toward penetrating into the new and unexplored markets and expansion of existing ones will work in the stock’s favor. The company’s three business segments — Clutches & Brakes, Electromagnetic Clutches & Brakes and Gearing — serve various end-markets including energy, general industrial, material handling, metals, mining, special machinery, turf and garden and transportation.
Also, measures undertaken to control costs and improving the margin profile will work in its favor. Per these restructuring and cost-saving strategies, the company intends to lower the strength of its facilities by 20-30% and improve its supply chain worldwide.
In the long term, the company anticipates revenue growth in excess of the Gross Domestic Product while it aims to expand its operating margin by 150 basis points on strategic pricing.
Buyouts — Key to Expansion: Over time, acquired assets have helped Altra Industrial leverage benefit from easy penetration into markets and expanded product offerings. In December 2016, the company acquired Stromag — a well-known tailored-engineered solution provider for customers in various markets — from GKN plc. The buyout added Stromag’s products including clutches and brakes, flexible couplings, limit switches and friction discs to the company’s portfolio. Notably, synergistic benefits from the Stromag acquisition contributed 20.3% to net sales growth in the fourth quarter of 2017.
Impressive Projections for 2018: Altra Industrial Motion anticipates gaining from improvements in the majority of the end markets, especially in turf and garden, material handling, metals and mining plus a solid product portfolio.
The company’s net sales are anticipated within $895-$915 million range in 2018, above $876.7 million generated in 2017. While non-GAAP earnings are projected at $2.30-$2.43 per share, up from $2.05 in the previous year. Estimated tax rate of 25-27% will result in cash benefits of $3.7 million.
Factors Working Against Altra Industrial
Rising Costs & Expenses Remain Issues: Altra Industrial is dealing with adverse impacts of rising costs and expenses. In the fourth quarter of 2017, its cost of sales grew 31.8% year over year while selling, general and administrative expenses rose 18.7%. Moreover, research and development expenses increased 38.5%. Margin profile was weak in the quarter as gross margin slipped 120 basis points (bps) year over year and non-GAAP operating margin fell 30 bps. We believe, if unchecked, rising costs and expenses can be detrimental to the company’s profitability in the quarters ahead.
Industry Competition and International Expansion: Altra Industrial faces stiff competition from companies offering similar products and services or those producing different items for same uses. Also, difficulties or delays in research and development or production and services, apart from the failure of new products and technologies in the market might hurt the company’s competitive edge. In addition, global expansion has exposed the company to risks arising from negative movements in foreign currencies and geopolitical issues. Also, as the company has to procure raw materials from suppliers in both domestic and international markets, it remains vulnerable to price fluctuations associated with policies and issues of the source countries.
Headwinds From Global Uncertainty: End markets served by Altra Industrial are susceptible to global economic conditions. Lower level of industrial activities and difficult financial positions in countries wherein the company operates, are likely to affect its sales, earnings and cash flow.
In the last three months, Altra Industrial’s shares have declined 5%, underperforming 4.6% gain recorded by the industry it belongs to.
Applied Industrial Technologies has pulled off an average positive earnings surprise of 10.97% over the last four quarters. Also, earnings estimates for fiscal 2018 (ending June 2018) and fiscal 2019 (ending June 2019) have been revised upward over the last 60 days.
Dover Corporation has delivered an average beat of 7.26% in the trailing four quarters. Also, bottom-line expectations for 2018 and 2019 have improved over the past 60 days.
Roper Technologies’ financial performance has been impressive with an average positive surprise of 3.12% in the last four quarters. Also, earnings estimates for 2018 and 2019 have moved north over the last 60 days.
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Here's Why You Must Hold on to Altra Industrial (AIMC) Stock
We issued an updated research report on Altra Industrial Motion Corporation on Feb 26. Strengthening of the end markets, focus on cost control and buyout gains are likely to benefit the company in the quarters ahead. However, industry competition, rising costs and expenses remain its prime concerns.
The stock carries a Zacks Rank #3 (Hold). Its market capitalization is approximately $1.3 billion.
Altra Industrial’s financial performance was better than expected in three of the last four quarters and below expectations in one quarter. Average earnings surprise was a positive 11.13%. The Zacks Consensus Estimate for current-year earnings is pegged at $2.44 per share, representing 5.2% growth from the tally a month ago.
Below we briefly discuss the company’s potential growth drivers and possible headwinds.
Factors Favoring Altra Industrial
Long-Term Growth Potential Solid: Altra Industrial’s focus toward penetrating into the new and unexplored markets and expansion of existing ones will work in the stock’s favor. The company’s three business segments — Clutches & Brakes, Electromagnetic Clutches & Brakes and Gearing — serve various end-markets including energy, general industrial, material handling, metals, mining, special machinery, turf and garden and transportation.
Also, measures undertaken to control costs and improving the margin profile will work in its favor. Per these restructuring and cost-saving strategies, the company intends to lower the strength of its facilities by 20-30% and improve its supply chain worldwide.
In the long term, the company anticipates revenue growth in excess of the Gross Domestic Product while it aims to expand its operating margin by 150 basis points on strategic pricing.
Buyouts — Key to Expansion: Over time, acquired assets have helped Altra Industrial leverage benefit from easy penetration into markets and expanded product offerings. In December 2016, the company acquired Stromag — a well-known tailored-engineered solution provider for customers in various markets — from GKN plc. The buyout added Stromag’s products including clutches and brakes, flexible couplings, limit switches and friction discs to the company’s portfolio. Notably, synergistic benefits from the Stromag acquisition contributed 20.3% to net sales growth in the fourth quarter of 2017.
Impressive Projections for 2018: Altra Industrial Motion anticipates gaining from improvements in the majority of the end markets, especially in turf and garden, material handling, metals and mining plus a solid product portfolio.
The company’s net sales are anticipated within $895-$915 million range in 2018, above $876.7 million generated in 2017. While non-GAAP earnings are projected at $2.30-$2.43 per share, up from $2.05 in the previous year. Estimated tax rate of 25-27% will result in cash benefits of $3.7 million.
Factors Working Against Altra Industrial
Rising Costs & Expenses Remain Issues: Altra Industrial is dealing with adverse impacts of rising costs and expenses. In the fourth quarter of 2017, its cost of sales grew 31.8% year over year while selling, general and administrative expenses rose 18.7%. Moreover, research and development expenses increased 38.5%. Margin profile was weak in the quarter as gross margin slipped 120 basis points (bps) year over year and non-GAAP operating margin fell 30 bps. We believe, if unchecked, rising costs and expenses can be detrimental to the company’s profitability in the quarters ahead.
Industry Competition and International Expansion: Altra Industrial faces stiff competition from companies offering similar products and services or those producing different items for same uses. Also, difficulties or delays in research and development or production and services, apart from the failure of new products and technologies in the market might hurt the company’s competitive edge. In addition, global expansion has exposed the company to risks arising from negative movements in foreign currencies and geopolitical issues. Also, as the company has to procure raw materials from suppliers in both domestic and international markets, it remains vulnerable to price fluctuations associated with policies and issues of the source countries.
Headwinds From Global Uncertainty: End markets served by Altra Industrial are susceptible to global economic conditions. Lower level of industrial activities and difficult financial positions in countries wherein the company operates, are likely to affect its sales, earnings and cash flow.
In the last three months, Altra Industrial’s shares have declined 5%, underperforming 4.6% gain recorded by the industry it belongs to.
Key Picks
Some better-ranked stocks in the industry are Applied Industrial Technologies, Inc. (AIT - Free Report) , Dover Corporation (DOV - Free Report) and Roper Technologies, Inc. (ROP - Free Report) , all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Applied Industrial Technologies has pulled off an average positive earnings surprise of 10.97% over the last four quarters. Also, earnings estimates for fiscal 2018 (ending June 2018) and fiscal 2019 (ending June 2019) have been revised upward over the last 60 days.
Dover Corporation has delivered an average beat of 7.26% in the trailing four quarters. Also, bottom-line expectations for 2018 and 2019 have improved over the past 60 days.
Roper Technologies’ financial performance has been impressive with an average positive surprise of 3.12% in the last four quarters. Also, earnings estimates for 2018 and 2019 have moved north over the last 60 days.
Will You Make a Fortune on the Shift to Electric Cars?
Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.
With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.
It's not the one you think.
See This Ticker Free >>