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Reasons Why Applied Industrial (AIT) is Worth Buying Now

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Investors seeking exposure in the general industrial manufacturing space may find Applied Industrial Technologies, Inc. (AIT - Free Report) an attractive investment option. Solid fundamentals, synergistic gains from buyouts and other tailwinds enhance the stock’s attractiveness.

This distributor of industrial products currently carries Zacks Rank #2 (Buy). It is headquartered in Cleveland, OH, and has a $3.6-billion market capitalization. It belongs to the Zacks Manufacturing – General Industrial industry, which comes under the ambit of the Zacks Industrial Products sector.

In the past three months, the company’s shares have gained 20.4% compared with the industry’s growth of 85.8%. Notably, the S&P 500 expanded 6.2%, while the sector advanced 31.1% during the same timeframe.

Below we discussed why Applied Industrial is a worthy investment option.

Impressive Results and Tailwinds: The company delivered impressive results for the second quarter of fiscal 2021 (ended December 2020), with earnings and sales surpassing estimates by 28.9% and 2.8%, respectively. A solid balance sheet, inorganic actions (discussed below), demand for engineered solutions and cross-selling actions are anticipated to benefit the company in the quarters ahead.

In the long term, the company expects cost-saving initiatives, solid product offerings, operation excellence and value-added services to be advantageous. Organic sales are expected to grow in mid-single digits in the long term, while net sales are expected to be $4.5 billion. Also, earnings are expected to grow in double-digits (CAGR) and free cash flow to exceed net income.

Acquired Assets: Over time, Applied Industrial has been benefiting from synergistic gains from acquired assets. In the first six months of fiscal 2021 (ended Dec 2020), the company used $31.1 million for making acquisitions (net of cash acquired). Notably, buyouts boosted sales by 0.5% in second-quarter fiscal 2021.

It is worth mentioning here that Applied Industrial added Advanced Control Solutions to its portfolio in October 2020. This transaction has helped strengthen the company’s automation solutions business. Also, Gibson was acquired in January 2021. This buyout too is expected to boost the company’s automation business, especially in the Mid-Atlantic and U.S. Northeast regions.

For third-quarter fiscal 2021 (ending Mar 2021), the company anticipates Advanced Control Solutions and Gibson acquisitions to boost sales by $10-$11 million.

Shareholders’ Rewards: Applied Industrial has been rewarding its shareholders with dividend payments over time. Its dividend payments advanced from $1.18 to $1.26 per share in the three fiscal years ending June 2021. In the first half of fiscal 2021, it distributed dividends of $24.9 million to its shareholders, reflecting an increase of 3.7% from the previous year.

Notably, the company announced a hike of 3.1% in its quarterly dividend rate this January. A healthy cash flow position will likely help Applied Industrial reward its shareholders.

Earnings Estimate Revisions: The company’s earnings estimates have increased in the past 60 days. Currently, the Zacks Consensus Estimate for earnings is pegged at 98 cents, both for the third quarter and the fourth quarter of fiscal 2021, suggesting increases of 11.4% and 2.1% from the 60-day-ago respective figures.

Also, earnings estimates are pegged at $3.84 for fiscal 2021 and $4.26 for fiscal 2022, suggesting increases of 11.6% and 6.5% from the 60-day ago figures.

Applied Industrial Technologies, Inc. Price and Consensus

Applied Industrial Technologies, Inc. Price and Consensus

Applied Industrial Technologies, Inc. price-consensus-chart | Applied Industrial Technologies, Inc. Quote

Other Key Picks

Some other top-ranked stocks in the industry are EnPro Industries, Inc. (NPO - Free Report) , Dover Corporation (DOV - Free Report) and Graco Inc. (GGG - Free Report) . While EnPro sports a Zacks Rank #1 (Strong Buy), both Dover and Graco carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, earnings estimates for these stocks have improved for the current year. Further, earnings surprise for the last reported quarter was 143.14% for EnPro Industries, 13.14% for Dover and 19.61% for Graco.

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