Applied Industrial Technologies, Inc.’s (AIT - Free Report) updated research report was issued on Mar 28.
Over the last month, this Zacks Rank #3 (Hold) stock has rallied 4.2%, outperforming 2.6% gain recorded by the industry it belongs to.
The company is poised to grow on the back of stronger sales, meaningful acquisitions and strategic restructuring programs. However, lower earnings view for fiscal 2018 remains a cause of concern.
In this January end, Applied Industrial successfully completed the acquisition of FCX Performance, Inc.
This Ohio-based business buyout is expected to strengthen the company’s Specialty Flow Control business but would likely weigh on its bottom-line performance in fiscal 2018. The deal is expected to dilute the company’s earnings by 11-21 cents per share in fiscal 2018 (ending June 2018). The projection includes the impact of 12-13 cents of one-time charges.
Moreover, the above graph reveals that Applied Industrial’s gross profit margin has been sliding since the beginning of fiscal 2018. In fiscal second quarter, gross margin was down 20 basis points year over year on account of inventory inflationary headwinds.
Notably, Applied Industrial has also lowered its earnings per share projection for fiscal 2018 to $3.19-$3.39 from the earlier estimate of $3.40-$3.50.
We fear that impending headwinds such as stiff industry rivalry, consolidation among major supplies/customers or a sudden supply chain challenge might weigh on the company’s near-term growth prospects.
Applied Industrial anticipates bolstering its sales by 15-16% in fiscal 2018, higher than the prior guidance of 6-7%. The company perceives that tailwinds prevailing in the industrial end-markets and FCX Performance buyout will support the upside of its top-line results. Notably, in the first 12 months, FCX Performance acquisition is anticipated to boost Applied Industrial’s sales by $555-$560 million.
Moreover, the company perceives that implementing numerous restructuring programs (especially in the upstream oil and gas businesses) as well as lower corporate tax rates will aid in boosting its profitability, going forward.
Also, Applied Industrial is highly committed toward returning value to its shareholders through lucrative dividend payments and share buyback offers. During the reported quarter, the company repurchased 145,800 shares for $9 million. Notably, as of Dec 31, 2017, the company had residual authorization to buy back an additional 1,056,700 shares. Moreover, in January 2018, the company increased its quarterly cash dividend rate by 3.4%
Stocks to Consider
A few better-ranked stocks within the same space are listed below:
Kawasaki Heavy Industries Ltd. (KWHIY - Free Report) sports a Zacks Rank #1 (Strong Buy). The company’s earnings per share (EPS) are projected to grow 21.6% in the next three to five years. You can see the complete list of today’s Zacks #1 Rank stocks here.
Barnes Group, Inc. (B - Free Report) carries a Zacks Rank #2 (Buy). The company’s EPS is projected to grow 10% in the next three to five years.
EnPro Industries (NPO - Free Report) carries a Zacks Rank #2. The company’s EPS is projected to grow 22.3% over the next three to five years.
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