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Kennametal (KMT) to Gain From End-Market Strength Amid Risks

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Kennametal Inc. (KMT - Free Report) stands to benefit from its presence in diverse end markets that enables it to neutralize risks associated with a single market with strength across others. The company has been witnessing solid momentum across its businesses in end markets like general engineering, energy, transportation, aerospace and earthworks. For second-quarter fiscal 2022 (ended December 2021, results are awaited), its sales are anticipated to be $480-$500 million, indicating year-over-year growth of 9-14%.

The company’s healthy balance sheet might prove beneficial. Exiting first-quarter fiscal 2022 (ended September 2021), it reduced its net debt to $486 million from $541 million in the year-ago quarter. It lowered its notes payable by $8 million in the quarter. Also, its interest expenses declined 40.6% to $6.3 million in the quarter on a year-over-year basis.

Kennametal’s policy of rewarding shareholders handsomely through dividend payments and share buybacks will work in its favor. In the fiscal first quarter, it paid out dividends worth $16.7 million and repurchased shares worth $12.9 million. Also, in August 2021, it announced a share buyback program worth $200 million.

However, Kennametal has been witnessing adverse impacts of cost inflation. In the fiscal first quarter, the company’s cost of sales and operating expenses increased 9.3% and 10%, respectively, on a year-over-year basis. Inflation related to merit increase, price/raw materials and higher depreciation expenses is expected to have an adverse impact of $10 million in the fiscal second quarter.

High taxes might also be concerning in fiscal 2022 (ending June 2022). The company expects a tax rate of 25-28% for the year compared with 23.6% reported in fiscal 2021 (ended June 2021).

Zacks Investment ResearchImage Source: Zacks Investment Research

The Zacks Rank #3 (Hold) stock has gained 4.3% in the past three months compared with the industry’s growth of 6.3%.

Stocks to Consider

Some better-ranked companies from the Zacks Industrial Products sector are discussed below.

Helios Technologies, Inc. (HLIO - Free Report) presently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. Its earnings surprise in the last four quarters was 37.54%, on average.

In the past 60 days, Helios’ earnings estimates have increased 9.6% for 2022. Its shares have gained 12.5% in the past three months.

EnPro Industries, Inc.(NPO - Free Report) presently carries a Zacks Rank #2 (Buy). Its earnings surprise in the last four quarters was 54.81%, on average.

In the past 60 days, EnPro’s earnings estimates have increased 12.8% for 2022. Its shares have gained 24.1% in the past three months.

Kadant Inc. (KAI - Free Report) presently carries a Zacks Rank #2. Its earnings surprise in the last four quarters was 19.21%, on average.

Kadant’s earnings estimates have increased 1% for 2022 in the past 60 days. Its shares have gained8.9% in the past three months.