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Timken's Shares Up 45% in a Year: What's Driving the Rally?

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The Timken Company (TKR - Free Report) shares have surged 45% over the past year. The company has also outperformed its industry’s growth of 17% over the same timeframe.

Timken has a Zacks Rank #3 (Hold) and a market cap of roughly $4 billion. Its average volume of shares traded in the last three months was around 568.2K. The company has an expected long-term earnings per share growth rate of 8.4%, above the industry average of 7.1%.

Let’s take a look into the factors that are driving this manufacturer of bearings, friction management products, and mechanical power transmission components.

What’s Working in Timken’s Favor?

Healthy growth prospects and upbeat outlook for fiscal 2019 contributed to the rally in the past year. Timken expects adjusted earnings per share between $4.70 and $4.75 for fiscal 2019, when it reports fourth-quarter results on Feb 6, 2020. The mid-point of the guidance suggests year-over-year growth of 13%. Earnings will benefit from acquisitions and favorable price and mix.

Timken has been active on the acquisition front this past year. In April 2019, the company completed the buyout of The Diamond Chain Company, a leading supplier of high-performance roller chains for industrial markets. Diamond Chain serves a diverse range of market sectors, including industrial distribution, material handling, food and beverage, agriculture, construction and other process industries.

In November, Timken completed the buyout of BEKA Lubrication for $165 million. BEKA is a leading global supplier of automatic lubrication systems, serving a diverse range of industrial sectors including wind, food and beverage, rail, on- and off-highway and other process industries. This acquisition positions Timken as the world's second largest producer of industrial automatic lubrication systems. Notably, these acquisitions are likely to drive the top line by 7.5%. The company is also poised to benefit from cost synergies for acquisitions.

Apart from acquisitions, Timken’s results will also benefit from strong organic growth in wind and solar energy, aerospace, marine and rail sectors and positive pricing. Continued demand growth in its products and services also bode well. Further, the company’s initiatives to reduce costs and improve operating efficiency will boost margins.

Stocks to Consider

Some better-ranked stocks in the Industrial Products sector are CIRCOR International, Inc. (CIR - Free Report) , Hickok Inc. (CRAWA - Free Report) and DXP Enterprises, Inc. (DXPE - Free Report) . While CIRCOR International and Hickok sport a Zacks Rank #1 (Strong Buy), DXP Enterprises carries a Zacks Rank #2 (Buy), at present. You can see the complete list of today's Zacks #1 Rank stocks here.

CIRCOR International has an expected earnings growth rate of 53% for the current year. The stock has surged 88% over the past year.

Hickok has a projected earnings growth rate of 12.2% for 2020. The company’s shares have gained 76% over the past year.

DXP Enterprises has an estimated earnings growth rate of 10.5% for the ongoing year. In a year’s time, the company’s shares have appreciated 29%.

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