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

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Shares of The Timken Company (TKR - Free Report) scaled a fresh 52-week high of $76.21 during the trading session on Dec 10, before retracting a bit to close at $75.01. The company has been benefiting from better-than-expected third-quarter results, expected savings from cost-cutting actions and strategic acquisitions. Its recent announcement of making investments through 2022 to grow in the lucrative Wind and Solar Energy Markets fueled the rally further.
 
The company has a market cap of $5.7 billion. It has an expected long-term earnings per share growth rate of 4.5%.

The Zacks Consensus Estimate for the company’s current year earnings has moved up 12% over the past 60 days. The estimate for the next year has gone up 10% over the same time period. Timken has a trailing four-quarter earnings surprise of 56.4%, on average.



Timken’s shares have gained 80.7% over the past six months compared with the industry’s rally of 55.3%.

Forecast-Topping Q3 Results

Timken reported third-quarter 2020 adjusted earnings per share of $1.13, which beat the Zacks Consensus Estimate of 91 cents. Revenues of $895 million surpassed the Zacks Consensus Estimate of $811 million. The company reported better-than-expected performance despite the impact of COVID-19 pandemic on demand driven by cost-reduction initiatives and favorable manufacturing performance.

Driving Factors

Timken continues to pursue strategic acquisitions in a bid to broaden portfolio and capabilities across diverse markets, with focus on bearings, adjacent power transmission products and related services. In sync with this, on Dec 1, the company announced that it has purchased all assets of Aurora Bearing Company (Aurora), which manufactures rod ends and spherical plain bearings for various range of industrial markets, including aerospace and defense, off-highway equipment, racing and packaging. Aurora’s revenues are projected to be around $30 million for the current year. This buyout builds upon last year’s acquisitions of BEKA Lubrication and the Diamond Chain Company.

On Dec 8, Timken announced that it will make capital investments of more than $75 million through early 2022 in an effort to expand its renewable energy business. This will further support the company’s remarkable growth in the wind and solar businesses in the days ahead. The company’s investments in acquisitions and innovations over the last few years have positioned it as a leading supplier and technology partner in the wind and solar energy market.

The renewable energy sector currently generates 7% of the company’s revenues and is expected to be roughly 12% of the total sales in 2020. The global demand for renewable energy is expected to witness a CAGR of around 8% over the next 10 years. Thus, the company is focused on targeted investments in this sector to capitalize on this trend and making it a bigger part of its portfolio in the future.

Timken has been 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 enhance profitability over the longer term.

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 include AGCO Corporation (AGCO - Free Report) , Avery Dennison Corporation (AVY - Free Report) and Ball Corporation (BLL - Free Report) . While AGCO flaunts a Zacks Rank #1, Avery Dennison and Ball Corporation carry a Zacks Rank #2, at present.

AGCO has an estimated earnings growth rate of 15.5% for the ongoing year. Shares of the company have appreciated 65% in the past six months.

Avery Dennison has a projected earnings growth rate of 4.6% for the current year. Over the past six months, the company’s shares have gained 37%.

Ball Corporation has an expected earnings growth rate of 16.2% for 2020. The stock has rallied 39% over the past six months.

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