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Here's Why Sun Hydraulics (SNHY) Stock is Worth Buying Now

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Sun Hydraulics Corporation (SNHY - Free Report) currently seems to be a smart choice for investors seeking exposure in the machinery space. The company’s fundamentals are strong. Further, its upwardly revised earnings estimates made it more lucrative.

This Sarasota, FL-based company currently sports a Zacks Rank #1 (Strong Buy). It belongs to the Zacks Manufacturing – General Industrial industry, within the broader Zacks Industrial Products sector. We believe that the strengthening housing market, infrastructural development, lower taxes (due to the implementation of the U.S. Tax Cuts and Jobs Act), solid manufacturing activities and other tailwinds are aiding the sector.

Below we discussed why investing in Sun Hydraulics (it runs business under the name, Helios Technologies) will be a smart choice for investors.

Share Price Performance, Impressive Earnings Outlook: Market sentiments seem to be working in favor of Sun Hydraulics over time. In the past three months, the company’s shares have increased 42.8% compared with the industry’s growth of 17.8%.




It is worth mentioning here the company delivered positive earnings surprise of 40% in the last quarter, with earnings of 56 cents per share surpassing the Zacks Consensus Estimate of 40 cents. Notably, its share price gained roughly 30%, following the release of fourth-quarter 2018 results on Feb 25, 2019.

For 2019, Sun Hydraulics anticipates gaining from growth investments, solid product portfolio and focus on driving operational excellence. It anticipates non-GAAP earnings per share of $2.55-$2.65, reflecting year-over-year growth of 11-15%. Also, adjusted earnings before interest, taxes, depreciation and amortization margin are predicted to improve to 24.5-25.5%.

In the past 60 days, earnings estimates for 2019 have been revised upward by six brokerage firms and increased by four for 2020. Currently, the Zacks Consensus Estimate for earnings is pegged at $2.60 for 2019 and $2.90 for 2020, reflecting growth of 23.2% and 18.4% from the respective 60-day-ago tallies.

Sun Hydraulics Corporation Price and Consensus

 

Sun Hydraulics Corporation Price and Consensus | Sun Hydraulics Corporation Quote

Top-Line Growth Opportunities: Sun Hydraulics recorded 48% year-over-year increase in sales in the fourth quarter of 2018. Healthy organic sales in the two segments, Hydraulics and Electronics, and synergistic gains from acquired assets drove top-line results in the reported quarter.

The company expects to benefit from solid customer base, exposure in various end-markets, investments to improve manufacturing capabilities and synergies from acquired assets. For 2019, it expects organic sales growth of 2-4%. Total revenues are anticipated to be $590-$600 million, reflecting year-over-year growth of 16-18%. On a segmental basis, Hydraulics’ revenues will likely be $464-$469 million and Electronics’s revenues will be $126-$131 million.

The Zacks Consensus Estimate for revenues is pegged at $592.1 million for 2019 and $621.5 million for 2020, reflecting year-over-year growth of 16.5% and 5%, respectively.

Shareholder-Friendly Policies: Sun Hydraulics remains committed to rewarding shareholders handsomely through dividend payments. In 2018, the company used approximately $11 million to pay dividends to shareholders, up from $10.3 million in 2017.

Acquisitive Nature: Over time, Sun Hydraulics fortified the product portfolio and leveraged business opportunities through the addition of assets.

Notably, the company acquired Custom Fluidpower in August 2018 and Faster in April 2018. Since acquired, Custom Fluidpower has been strengthening Sun Hydraulics’ hydraulics business while Faster is boosting opportunities in the global agriculture market. These acquired assets have been integrated with the company’s Hydraulics segment.

Sun Hydraulics predicts that results of the Hydraulics segment in the first quarter of 2019 will include synergistic gains from Faster and Custom Fluidpower. Also, per the company’s Vision 2025, acquired assets will contribute approximately $70 million to the total predicted revenues of $1 billion.

Other Key Picks

Some other top-ranked stocks in the industry are DXP Enterprises, Inc. (DXPE - Free Report) , Roper Technologies, Inc. (ROP - Free Report) and Chart Industries, Inc. (GTLS - Free Report) . While DXP Enterprises and Roper currently sport a Zacks Rank #1, Chart Industries carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, earnings estimates for all these three stocks have improved for the current year. Further, average earnings surprise for the last four quarters was a positive 46.55% for DXP Enterprises, 4.96% for Roper and 23.60% for Chart Industries.

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