Tennant Company (TNC - Free Report) can currently be considered a smart choice for investors seeking exposure in the manufacturing industry. It has solid fundamentals and boasts solid growth prospects, evident from positive revision in its earnings estimates.
The Minneapolis, MN-based company currently sports a Zacks Rank #1 (Strong Buy) and has a VGM Score of A. It belongs to the Zacks Manufacturing – General Industrial industry, which belongs to the broader Zacks Industrial Products sector.
We believe that a spur in construction and remodeling activities, technological advancement in manufacturing processes, the growing popularity of e-retailing, and infrastructure development are a few factors that favor companies operating in the industry.
Below we discussed why it is worth investing in Tennant.
Healthy Performance and Solid Growth Prospects: The company performed well in the last four quarters, with a positive earnings surprise of 26.60%, on average. Notably, its earnings of 64 cents per share surpassed the Zacks Consensus Estimate of 60 cents by 6.67%.
As noted, the company is focused on reducing complexity and building scalable processes. Also, innovation and expansion, where competitive advantages exist, might aid. For 2020, Tennant anticipates net sales of $1.15-$1.16 billion, suggesting growth from $1.14 billion reported in 2019. Organic sales will likely increase 1.5-2.5%.
Adjusted earnings will probably be $4.00-$4.15 per share, indicating growth from $2.90 reported in 2019.
Despite the impressive results and promising projections, the company’s price performance has not been very appealing. Year to date, its share price has decreased 31.2% as compared with the industry’s decline of 33.6%.
Rewards to Shareholders: Tennant is committed toward rewarding shareholders handsomely through dividend payments. In 2019, it paid out dividends of $16 million or 88 cents per share. The payment represents an increase from $15.3 million or 85 cents per share paid out in 2018.
It is worth mentioning here that the company refrained from repurchasing any shares in 2019. Exiting the year, it had the authorization to buy back 1.4 million of its common shares.
Investments: The company is focused on capacity expansion and expanding growth opportunities through acquisitions. In 2019, it invested $38.4 million for purchasing property, plant and equipment, reflecting an increase from $18.8 million spent in 2018. For 2020, the company intends on spending $35 million in capital expenditure.
Also, it completed the buyout of Hefei Gaomei Cleaning Machines Co., Ltd. and Anhui Rongen Environmental Protection Technology Co., Ltd. in January 2019. The latter specializes in making cleaning solutions and equipment for industrial and commercial purposes. Since acquired, the acquired assets have helped in strengthening Tennant’s manufacturing capabilities in China.
Earnings Estimate Trend: In the past 30 days, two upward revisions have been recorded for the company’s earnings estimates for 2020, while one positive revision has been witnessed for 2021. There was no downward revision for the years.
Currently, the Zacks Consensus Estimate for Tennant’s earnings is pegged at $4.08 for 2020 and $4.50 for 2021, reflecting growth of 37.4% and 27.1% from the 30-day-ago figures. On a year-over-year basis, earnings estimates for 2020 and 2021 indicate growth of 40.7% and 10.3%, respectively.
Tennant Company Price and Consensus