Gates Industrial Corporation plc’s (GTES - Free Report) shares have been rallying high, courtesy of its stellar performance, strong global demand across its industrial end-markets coupled with significant strength in emerging markets.
In fact, shares of this leading global provider of application-specific fluid power and power transmission solutions have gained 26.3% over the past three months, outperforming the industry’s 12.1% rally.
Notably, earnings estimates for Gates Industrial have exhibited an uptrend, reflecting optimism in the stock’s prospects. The Zacks Consensus Estimate for the company’s 2018 earnings has moved up 12.4%, reflecting three upward revisions over the past 60 days. Also, estimates for 2019 have climbed 7.3% over the same time frame, depicting three positive revisions. This signifies that analysts are optimistic of the company’s future earnings growth, despite much apprehension surrounding incremental startup costs.
Let us delve deeper into the other factors that make this Zacks Rank #2 (Buy) stock a profitable pick. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
What Makes the Stock an Attractive Pick?
Strong Industrial End-Market Demand: The company continues to see strong demand across many end markets it serves. Gates Industrial has been registering double-digit growth in industrial end-markets, led by construction, agriculture and heavy-duty trucks. In fact, the company experienced solid demand in automotive in the second quarter of 2018, driven by its aftermarket presence, which grew high single-digits globally and was strong in both developed and emerging markets. It has also benefited from overall double-digit core revenue growth in emerging economies in both the replacement and first-fit channels.
Notably, the company’s net sales growth was 13.8% in the last reported quarter. Core growth contributed 6.7% to its top line, while acquisitions and foreign currency translation added 4.9% and 2.1%, respectively. Importantly, the company’s adjusted earnings of 38 cents per share increased 46.2% from 26 cents in the prior-year quarter, driven by better operating performance, a lower effective tax rate and reduced interest expense.
Gates Industrial remains on track with its organic growth initiatives that include investments in commercial capabilities, new product development and incremental manufacturing capacity.
Upbeat Views and Solid Growth Prospects: Given global Gates team’s progress achieved so far, the company raised its full-year expectations for both net sales growth and adjusted EBITDA. Total net sales growth is now expected in the range of 10-12%, the core revenue growth component of which is expected to be 6-7%. Adjusted EBITDA is now expected in the range of $745-$765 million, up from prior expectation of $738-$758 million.
Meanwhile, the company now expects total capital expenditure to be approximately $180 million compared with the previous guided range of $150-$170 million, reflecting investment in certain additional organic initiatives.
Gates Industrial has solid growth prospects, as is evident from the Zacks Consensus Estimate for its current-year earnings of $1.18 per share, which are expected to grow 42.2% year over year (higher than the industry average of 10.3%). Meanwhile, the company’s sales are expected to increase by a decent 11.8% in 2018 (versus 1.7% of the industry). Moreover, its earnings are expected to increase 12.2% on 5.7% sales growth in 2019.
Overall, it constitutes a great pick in terms of growth investment, supported by a Growth Score of A.
VGM Score: Gates Industrial has a VGM Score of B. Our VGM Score identifies stocks that have the most attractive value, growth and momentum characteristics. In fact, our research shows that stocks with VGM Scores of A or B when combined with a Zacks Rank #1 or 2 make a solid investment choice.
Other Stocks to Consider
Other top-ranked stocks in the Construction sector include Comfort Systems USA, Inc. (FIX - Free Report) , KBR, Inc. (KBR - Free Report) and Jacobs Engineering Group Inc. . While Comfort Systems and KBR sport a Zacks Rank #1, Jacobs carries a Zacks Rank #2 (Buy).
Comfort Systems’ earnings are expected to increase 56.3% in 2018.
KBR surpassed earnings estimates in three of the trailing four quarters, resulting in an average positive surprise of 12.3%.
Jacobs’ 2018 earnings are expected to increase 35.2%.
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