We issued an updated research report on Altra Industrial Motion Corporation (AIMC - Free Report) on Aug 28. Strengthening end markets as well as potential benefits from strategic initiatives and diversified business structure make it an attractive choice for investors seeking exposure in the machinery industry.
The company delivered a positive earnings surprise of 11.76% in second-quarter 2017. Also, it pulled off an average positive earnings surprise of 16.95% in the last four quarters. We believe that impressive financial performance and solid growth momentum have led to positive revisions in earnings estimates. Notably, over the last 60 days, the stock’s Zacks Consensus Estimate increased 5.7% to $2.03 for 2017 and 6% to $2.28 for 2018.
In the last six months, Altra Industrial’s shares have yielded 14.3% return, outperforming the gain of 2.3% recorded by the industry.
Here’s why Altra Industrial seems to be an attractive pick:
Diversification Benefits: We believe Altra Industrial’s well-diversified product portfolio will help it grow in the quarters ahead. Its product line includes clutches & brakes, couplings, and gearing & power transmission components. These products are used in various industries including energy, general industrial, material handling, metals, mining, special machinery, transportation, and turf and garden industries.
Furthermore, international diversity has played a major role in Altra Industrial’s profitability over time. Notably, in second-quarter 2017, it derived nearly 51.6% of net revenues from its North American operations while roughly 48.4% were sourced from Europe, Asia and other countries.
Strategic Initiatives: Alignment of its business operations with the current demand levels and strict control over costs remain priorities for Altra Industrial. To this end, the company has initiated certain restructuring and cost-saving strategies, through which it intends to lower the number of its facilities by 20-30% and improve its supply chain worldwide. These initiatives will be completed by 2018 and will help in boosting the company’s margin profile.
Inorganic Growth: Acquiring meaningful businesses have helped the company expand its product offerings and in turn, its profitability. Notably, the company’s acquisition of Stromag business of GKN plc, completed in January 2017, is predicted to boost the company’s earnings in 2017. Stromag is known for its tailored-engineered solution for customers in various markets. Its product portfolio includes clutches and brakes, flexible couplings, limit switches and friction discs.
In the first and second quarters of 2017, Stromag business contributed 19.2% and 18.3% to sales growth, respectively.
Shareholders’ Return and Promising ’17 Guidance & Long-Term Targets: Share buybacks and dividend payments are the prime means of returning value to shareholders. In first-half 2017, the company paid cash dividends of $8.3 million to its shareholders. Also, in October 2016, the company was authorized to repurchase $30 million worth shares through December 2019.
For 2017, Altra Industrial anticipates revenues to be $850-$865 million, up from the previous projection of $840-$855 million. Non-GAAP earnings are anticipated to be $1.95-$2.05 per share, up from the earlier forecast of $1.83-$1.93. In the quarters ahead, the company anticipates gaining from the steadily improving end markets, savings from cost-reduction initiatives and synergistic benefits from the Stromag acquisition.
Over the long term, Altra Industrial anticipates revenue growth to be in excess of the Gross Domestic Product while aims to improve its operating margin by 50 basis points on strategic pricing.
Zacks Rank & Other Stocks to Consider
Altra Industrial currently has $1.4 billion market capitalization. We believe that the above-mentioned positives clearly justify the stock’s current Zacks Rank #2 (Buy).
In the machinery space, other stocks worth considering include Kadant Inc. (KAI - Free Report) , Sun Hydraulics Corporation (SNHY - Free Report) and Barnes Group, Inc. (B - Free Report) . While both Kadant and Sun Hydraulics sport a Zacks Rank #1 (Strong Buy), Barnes Group carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Kadant’s earnings estimates for 2017 and 2018 were revised upward in the last 60 days. Also, the company delivered an average positive earnings surprise of 19.29% in the last four quarters.
Sun Hydraulics pulled off an average positive earnings surprise of 3.47% for the last four quarters. Also, its earnings estimates for 2017 and 2018 improved in the last 60 days.
Barnes Group’s earnings estimates for 2017 and 2018 were revised upward in the last 60 days. Also, the company’s average earnings surprise for the last four quarters was a positive 11.60%.
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