Zacks Investment Research | Nov 27, 2018 12:25AM ET
On Nov 27, we upgraded Actuant Corporation (NYSE:ATU) to a Zacks Rank #3 (Hold) from a Zacks Rank #4 (Sell). Going by the Zacks model, companies holding a Zacks Rank #3 have chances of performing in line with the broader market over the next one to three months.
What’s Favoring the Stock?
U.S. manufacturing output marked its fifth straight monthly hike this October, as factory activities in the space, significantly gained steamed. Of late, the American manufacturing companies have been largely buoyed by sturdy domestic economic conditions. Economic policies adopted by the Trump administration, including the December-enacted corporate-tax overhaul and impetus to streamline business regulations, helped boost corporate spending for most of these companies.
We notice that Actuant’s revenues improved 7.9% in fiscal 2018 (ended August 2018), on the back of robust demand from almost all end-market sales. In fiscal 2019 (ending August 2019), the company expects that sales of its Industrial Tools & Services segment will be up 3-5% year over year, including mid-single-digit growth in both the first and the second half of the fiscal. On the other hand, the Engineered Components & Systems segment’s top-line performance is anticipated to improve 2-5%, including low-single-digit growth in the first half and mid-single-digit growth in the second half. For fiscal 2019, the company currently expects revenues of $1.21-$1.24 billion, reflecting year-over-year growth of 3-5%. Per our estimates, Actuant’s year-over-year revenue growth is currently pegged at 3.6% and 4.2% for fiscal 2019 and 2020 (ending August 2020), respectively.
Additionally, Actuant intends to become more competitive on the back of strategic inorganic moves. In sync with this, the company has made several buyouts and undertaken divestitures in the past couple of months. For instance, the acquisition of Mirage Machines in second-quarter fiscal 2018 (ended August 2018) helped strengthen the company’s Energy business arm. Also, Equalizer buyout in the third quarter of fiscal 2018 (ended August 2018) fortified the company’s Industrial segment. On the other hand, in a bid to limit its exposure to upstream oil & gas market (offshore), Actuant divested its Viking business in the fiscal third quarter. The company lately notified its interest to divest Cortland Fibron business, as it is less suitable for the Industrial Tools & Services segment’s growth.
Existing Issues
Despite the aforementioned positives, Actuant’s stock has underperformed and looks overvalued compared to its Original post
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