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Applied Industrial (AIT) Up to Buy on Solid Growth Drivers

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On Aug 24, premium industrial equipment wholesaler Applied Industrial Technologies, Inc.  (AIT - Free Report) was upgraded to a Zacks Rank #2 (Buy) from a Zacks Rank #3 (Hold). Going by the Zacks model, companies holding a Zacks Rank #2 have strong chances of performing better than the broader market, moving ahead.

Reasons Behind the Upswing

Shares of Applied Industrial yielded a return of 16.7%, outperforming 10.4% growth recorded by the sector, in a year’s time.

Notably, the attractiveness of this stock as a current investment choice is further accentuated by its favorable Value Growth Momentum Score ‘A’.

Applied Industrial’s revenues and profitability have been improving since the beginning of second-half of fiscal 2017 (January-June 2017). In fourth-quarter fiscal 2017, the company’s organic top-line growth came in at 7.9%. This upside was stemmed by elevated sales in the upstream oil and gas segments, as well as robust performance of the fluid power businesses in the United States. The company believes that these positives would continue to bolster its revenues even in fiscal 2018 (ending June 2018). Notably, top-line growth is anticipated to be within the range of 3-5% for the current fiscal.

Applied Industrial boosts its financials on the back of strategic acquisitions. For instance, the buyout of Sentinel Fluid Controls (March 2017) would likely reinforce the company’s Fluid Power business, moving ahead. Sentinel Fluid Controls offers non-imitable custom, mobile, standard and industrial, hydraulic and lubrication systems.

Apart from strong revenues, Applied Industrial’s near-term margins are anticipated to improve on the back of disciplined cost management, increased productivity and new enterprise resource planning investments. In order to bring down operational costs and align productive resources with existing opportunities, customer demand and market conditions, the company implemented numerous restructuring programs (especially in the upstream oil and gas businesses) in fiscal 2017.

Applied Industrial is also highly committed toward returning value to its shareholders through lucrative dividend payments and share buyback offers. Over the last four years, the company repurchased shares worth nearly $159 million and lowered average shares outstanding by more than 8% to 39.4 million common stock as of the end of fiscal 2017. Furthermore, the company intends to buy back shares worth $10-$15 million in each quarter of fiscal 2018.

The Zacks Consensus Estimate for the stock has moved north for both fiscal 2018 and fiscal 2019, in a month’s time, reflecting positive market sentiments.  

Other Stocks to Consider

Other top-ranked stocks in the industry are listed below:

AGCO Corporation (AGCO - Free Report) , which sports a Zacks Rank #1 (Strong Buy) at present, generated an average positive earnings surprise of 39.70% over the trailing four quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.

Altra Industrial Motion Corp. (AIMC - Free Report) has an average positive earnings surprise of 16.95% for the last four quarters and currently flaunts a Zacks Rank #1.

Avery Dennison Corporation (AVY - Free Report) also holds a Zacks Rank #2 and has a remarkable average positive earnings surprise of 6.07% for the same time frame.

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