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Timken (TKR) Hits 52-Week High: What's Driving the Upside?

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Shares of The Timken Company (TKR - Free Report) scaled a fresh 52-week high of $71.55 during the trading session on Nov 11, before retracting a bit to close at $70.02. Forecast-topping third-quarter results, strategic acquisitions and the company’s cost-control efforts contributed to this rally.

The company has a market cap of $5.4 billion. It has an expected long-term earnings per share growth rate of 4.5%.Timken has a trailing four-quarter average earnings surprise of 56.3%.

Timken’s shares have gained 24.3% year to date as against the industry’s decline of 0.9%.

Q3 Earnings & Sales Top Consensus Mark

The company reported third-quarter 2020 adjusted earnings per share of $1.13, which beat the Zacks Consensus Estimate of 91 cents by a margin of 24%. Revenues of $895 million also surpassed the Zacks Consensus Estimate of $811 million.The company’s strategy to diversify its portfolio and expand presence in renewable energy sector are contributing to its performance.

Driving Factors

Timken continues to pursue strategic acquisitions in a bid to broaden its portfolio and capabilities across diverse markets, with focus on bearings, adjacent power transmission products and related services. In 2018, the company acquired Rollon, Cone Drive and ABC Bearings.

In 2019, Timken completed the buyout of BEKA Lubrication and the Diamond Chain Company. The acquisition of BEKA Lubrication strengthened the company’s global leadership in the automatic lubrication systems market sector. It also expanded its geographic reach in Europe and Asia, and strengthened position in lucrative markets, such as wind and food and beverage.

Diamond Chain has reinforced Timken's leadership in high-performance roller chains for industrial markets. These acquisitions have fortified the company's global presence in growing markets, particularly China and Europe. These buyouts are expected to deliver significant cost and revenue synergies in the days ahead.

Timken is taking actions to enhance liquidity, reduce costs and generate strong cash flow. The company has accelerated and expanded its structural cost-reduction initiatives in order to align costs with near-term demand expectations and also enhance profitability over the longer term. Management anticipates these structural cost reduction actions to generate approximately $55-$60 million of total year-over-year savings in remaining part of 2020. These actions will help improve the company’s cost structure and sustain margins.

The company expects relatively stable market condition with normal seasonality through the end of the year. It is also witnessing strong demand across most of its markets, including the Wind and Solar sectors. Timken’s products are essential for efficient and reliable operation of industrial equipment globally. Demand for the company’s products will remain strong in the years to come. Its diversity in terms of end market, customer and geography, product innovation, and engineering expertise provides it with a competitive edge.

Upward Estimate Revisions

The Zacks Consensus Estimate for the company’s earnings for the current year has moved 12.4% north over the past 30 days and is currently pegged at $4.16 per share.

Zacks Rank & Other Stocks to Consider

Timken currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some other top-ranked stocks in the Industrial Products sector are Crown Holdings, Inc. (CCK - Free Report) , iRobot Corporation (IRBT - Free Report) and SiteOne Landscape Supply, Inc. (SITE - Free Report) . While Crown Holdings and iRobot sport a Zacks Rank #1, SiteOne Landscape carries a Zacks Rank #2, at present.

Crown Holdings has a projected earnings growth rate of 11.7% for fiscal 2020. Over the past year, the company’s shares have appreciated 30% year to date.

iRobot has an estimated earnings growth rate of 18.8% for the ongoing year. Year to date, the company’s shares have gained 41%.

SiteOne Landscape has an expected earnings growth rate of 28.6% for 2020. So far this year, the stock has climbed 41%.

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