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Kennametal (KMT) Displays Bright Prospects, Headwinds Persist

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On Jan 12, we issued an updated research report on Kennametal Inc. (KMT - Free Report) .

In the past three months, this Zacks Rank #3 (Hold) stock has gained 20% compared with the industry’s growth of 4.2%.

Existing Business Scenario

Kennametal is poised to benefit from gradual improvement in general engineering, transportation and other end markets. Also, the company has been gaining from its innovation capabilities, strong product offerings and cost saving actions. For the second quarter of fiscal 2021 (ended December 2020), the company anticipates its sales to have grown in low- to mid-single digits on a sequential basis.

Also, the company’s simplification initiative has been proving advantageous, resulting in improvement in operational efficiency and reduction of costs. Moreover, its modernization initiative is contributing to strong operating leverage. It’s worth mentioning here that the initiatives boosted Kennametal's bottom line by 20 cents per share, on a year-over-year basis, in the first quarter of fiscal 2021 (ended September 2020).

In addition, it remains committed to rewarding shareholders handsomely through dividend payments. Notably, the company paid out dividends worth $16.6 million to shareholders in first-quarter fiscal 2021.

However, Kennametal remains wary about the end-market challenges due to the coronavirus outbreak. Notably, it refrained from providing projections for fiscal 2021 (ending June 2021).

In addition, the company’s high-debt profile poses a concern. Exiting first-quarter fiscal 2021, its long-term debt was high at $593.3 million, whereas its cash and cash equivalents totaled $98.3 million. Any further increase in debt levels can raise the company’s financial obligations.

Stocks to Consider

Some better-ranked stocks from the Zacks Industrial Products sector are AGCO Corporation (AGCO - Free Report) , Acco Brands Corporation (ACCO - Free Report) and Dover Corporation (DOV - Free Report) . While AGCO currently sports a Zacks Rank #1 (Strong Buy), Acco Brands and Dover carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

AGCO delivered a positive earnings surprise of 434.48%, on average, in the trailing four quarters.

Acco Brands delivered a positive earnings surprise of 278.49%, on average, in the trailing four quarters.

Dover delivered a positive earnings surprise of 18.10%, on average, in the trailing four quarters.

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