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Kennametal (KMT - Free Report) is $3.3 billion global supplier of tooling, engineered components and advanced materials consumed in production processes in multiple industries including aerospace, energy, transportation, and machine tools.

Founded in 1938 by metallurgist Philip M. McKenna in Latrobe, PA, Kennametal serves customers in more than 60 countries and in 2017 was named one of the World’s Most Ethical Companies for the 6th consecutive year by the Ethisphere Institute.

Big Top & Bottom Line Turnaround

In late 2014, Kennametal hit a peak in revenues of near $2.9 billion. But the decline to trailing 12-month sales of $2 billion in the December quarter may be the trough of a two-year slide.

Earnings have certainly troughed, with the current fiscal year (ending in June) projected to recover to $1.58 EPS, representing 42% annual growth. And the outlook remains bright with fiscal 2018 forecast by the Zacks analyst consensus to climb another 36.4% to $2.15 EPS.

This earnings turnaround, and a March quarter positive EPS surprise of 39.5%, put KMT shares back to a Zacks #1 Rank in late April.

Great American Industrial Story

I've been screening more lately for stocks specifically in the Industrial sector. Since the domestic and global economies have been sustaining and building momentum for the past year, many "heavy metal" manufacturing and service industries should continue to generate impressive earnings growth.

In fact, I noticed this week how many quality companies had slipped past my Tech-focused radar this year, such as Illinois Tool Works (ITW - Free Report) , Stanley Black & Decker (SWK - Free Report) , and Honeywell (HON - Free Report) .

And when my research put Kennametal on my radar, I was impressed to find such a great American story. From the company website...

In 1938, McKenna invented the first tungsten-titanium carbide alloy for cutting tools that provided a productivity breakthrough in the machining of steel. Kennametal tools cut faster and lasted longer, and thereby facilitated metalworking in products from automobiles to airliners to machinery.

During World War II, Kennametal's annual sales approached $10 million and employment was nearly 900 as the company's tools were used extensively in the war-time economy.

When the wartime boom ended, Kennametal sought new ways to exploit the toughness and wear resistance of tungsten carbide alloys. In the mid-1940s, the company pioneered the use of carbide tooling for mining, which led to the development of the continuous mining machine. Kennametal also found uses for tungsten carbide in demanding specialty applications where resistance to wear was vital, such as in valves, dies, drill bits and snowplow blades.


A Global Tool Box

Kennametal's unique, patented thermit process for producing impact-resistant macrocrystalline tungsten carbide today remains the best way to produce extremely tough tool materials for demanding applications such as mining.

And the company has a rich history of expanding with partners and suppliers in Europe and Asia, including a 1990's manufacturing joint venture for mining tools in China and a metalworking tool manufacturing plant in Shanghai. In 2002, Kennametal acquired Widia, a leading manufacturer and marketer of metalworking tools in Europe and India.

Kennametal maintains its technological leadership through its $30-million Technology Center in Latrobe, Pennsylvania, and complementary facilities in various locations around the globe. The facilities are dedicated to rapid development of products engineered to meet specific customer requirements.

Mid-Cycle Earnings Power of $3.00

Industrial analysts at Jefferies currently have a $50 price target on Kennametal shares, citing that KMT "remains one of the most attractive turnaround stories in our coverage." They see earnings climbing toward $3 EPS and that investors will pay a mid-teens multiple.

KeyBanc analysts have a $48 target on KMT and earlier this month highlighted the positive industry trend coming from the Metalworkings Business Index (MBI), a PMI-style diffusion survey, which increased to 57.1, the highest reading since 2011. The New Orders component was 60.2, up from 57.7 in April.

The analysts noted that metalworking is the primary product offering of Kennametal at roughly 80% of sales, and that demand for metalworking supplies is "a useful indicator for general manufacturing activity as they represent a primary consumable within the production process."

Bottom line: it's not too late to find solid Industrial stocks to participate in the continuing global expansion. The Zacks Rank remains one of your best ways to spot them.

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