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Is Enerpac Tool (EPAC) Stock a Promising Investment Option?

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Investors look for companies that consistently yield high returns over a substantial time period. Enerpac Tool Group Corp. (EPAC - Free Report) is one of the few mid-cap machinery companies, which investors should consider, given its strong growth potential.

However, the past several quarters have not been smooth for U.S.-based Enerpac, given the persistence of several uncertainties in the end markets it serves. The leading manufacturer and distributor of industrial tools has seen its shares decline 12.8% year to date compared with the industry’s decrease of 14.1%.



What Does RSI Indicate?

RSI or ‘Relative Strength Index’ is a popular technical indicator. It compares average of gains in days that closed up to the average of losses in days that closed down. Readings above 70 suggest an asset is overvalued, while that below 30 indicates undervalued conditions.

Enerpac has a RSI reading of 30.32, which suggests it is now in close to the undervalued territory, raising hope for investors.

However, the Zacks Rank #2 (Buy) company’s low RSI value isn’t the only reason to be optimistic of a turnaround. The stock also has several growth drivers in place and boasts promising growth prospects.

What Makes Enerpac an Attractive Option?

Enerpac is well placed to benefit from its focus on product development. The company introduced seven products in fourth-quarter fiscal 2019 (ended Aug 31, 2019) and three in the first quarter of fiscal 2020 (ended Nov 30, 2019). As noted, new product contributions to sales in the fiscal first quarter increased more than 10%, consistent with the target.

Also, the company is likely to benefit from its focus on growth initiatives and exit from non-profitable businesses. For fiscal 2020 (ending Aug 31, 2020), the core sales growth of the company’s medical business, represented under Cortland, is anticipated to be 10-15%. In addition, following the divestment of its Engineered Components & Systems segment in October 2019, Enerpac has become a pure-play industrial tool and services provider. This will help enhance shareholder value.

Moreover, the company’s financial leverage improved to 0.8x from the year-ago figure of 2.1x, with repayment of $175 million of long-term debts in the fiscal first quarter. In addition, it has set certain long-term targets. For the next five years (fiscal 2020-2024), Enerpac expects its core sales to grow at 5% (CAGR). Notably, the company’s expansion in regions and industries, benefits from acquired assets, product innovation, and commercial efficiency are likely to boost top-line performance. Earnings before interest, tax, depreciation and amortization margin is predicted to be 25% by fiscal 2024. The improvement is likely to be driven by gains from incremental product sales, focus on rental and value-added services, footprint optimization and cost-reduction plans. It’s worth mentioning here that the company’s earnings are likely to rise 15.2% over the next five years.

What Do Earnings Estimate Revisions Suggest?
 
Enerpac’s earnings estimates have been trending north over the past 60 days, with one upward estimate revision each for fiscal 2020 and fiscal 2021 (ending August 2021). The Zacks Consensus Estimate for fiscal 2020 has been revised upward from 74 cents to 75 cents. In addition, the consensus estimate for fiscal 2021 has been revised upward from $1.05 to $1.07 over the same time frame.

Earnings Trend

Enerpac has outperformed the Zacks Consensus Estimate in each of the trailing four quarters, with the positive earnings surprise being 18.57%, on average.

Other Key Picks

Some other top-ranked stocks from the Zacks Industrial Products sector are Graco Inc. (GGG - Free Report) , Dover Corporation (DOV - Free Report) and Tetra Tech, Inc. (TTEK - Free Report) . While Graco sports a Zacks Rank #1 (Strong Buy), Dover and Tetra Tech carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Graco pulled off positive surprise of 0.40%, on average, in the last four quarters.

Dover delivered positive earnings surprise of 5.36%, on average, in the trailing four quarters.
 
Tetra Tech came out with positive surprise of 8.31%, on average, in the last four quarters.

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