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Exit From Arkansas Plant Agreement to Impede Astec's Growth

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On Sep 3, we issued an updated research report on Astec Industries, Inc. (ASTE - Free Report) . Results of this road building equipment maker will be affected by its exit from the Arkansas wood-pellet plant agreements. Tariff on the imports of steel and strong U.S. dollar will also impact the company’s performance.

Let’s discuss the factors in detail.

Closure of Arkansas Wood-Pellet Plant Agreements

During second-quarter 2018, Astec and Highland Pellets, its wood-pellet plant customer in Arkansas decided to exit the Arkansas wood-pellet plant agreements. Per the terms of this agreement to exit the contract, Astec will pay $68 million in cash and forgive approximately $7 million in receivables. In exchange, Highland has agreed to release all of Astec’s contractual obligations related to the Highland wood-pellet plant. Thus, Astec has redefined its wood-pellet plant strategy and plans to serve as an equipment supplier to the pellet industry, but will no longer finance plants or act as an Engineer, Procure, Construct (EPC) contractor.

Steel Tariff to Hamper Astec’s Margins

Astec uses steel as a major raw material to manufacture products. Therefore, the imposition of a 25% tariff on the imports of steel will dent its margin performance.

Strong U.S. Dollar Remains a Threat

From mid-2012 through 2017, a strong U.S. dollar has dampened pricing in certain foreign markets Astec serves. The company expects the U.S. dollar to remain strong as compared to historical rates, in the near term, relative to most foreign currencies. Escalating domestic interest rates or weakening economic conditions abroad might cause the U.S. dollar to strengthen further, which will impact Astec's international sales.

Downward Estimates Revision

The downtrend in Astec’s estimates over the past 60 days underlines bearish investor sentiments. The Zacks Consensus Estimate declined 2% to $3.30 for 2018 and 5% to $3.73 for 2019.

Share Price Performance

Astec has underperformed its industry with respect to price performance over the past year. The stock has lost around 1%, while the industry has recorded growth of around 18% during the same time frame.



Zacks Rank & Stocks to Consider

Astec currently carries a Zacks Rank #4 (Sell).

Better-ranked stocks in the same sector include W.W. Grainger, Inc. (GWW - Free Report) , iRobot Corporation (IRBT - Free Report) and Atkore International Group Inc. (ATKR - Free Report) . All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Grainger has a long-term earnings growth rate of 12.5%. Its shares have appreciated a 119%, over the past year.

iRobot Corporation has a long-term earnings growth rate of 19.5%. The company’s shares have gained 18% in a year’s time.

Atkore International has a long-term earnings growth rate of 10%. The stock has rallied 59% in a year’s time.

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