Applied Industrial (AIT) Poised To Grow Amid Headwinds
Zacks Investment Research | Mar 28, 2018 04:42AM ET
Applied Industrial Technologies, Inc.’s (NYSE:AIT) updated research report was issued on Mar 28.
Over the last month, this Zacks Rank #3 (Hold) stock has rallied 4.2%, outperforming 2.6% gain recorded by the industry it belongs to.
The company is poised to grow on the back of stronger sales, meaningful acquisitions and strategic restructuring programs. However, lower earnings view for fiscal 2018 remains a cause of concern.
Inside Story
In this January end, Applied Industrial successfully completed the acquisition of FCX Performance, Inc.
This Ohio-based business buyout is expected to strengthen the company’s Specialty Flow Control business but would likely weigh on its bottom-line performance in fiscal 2018. The deal is expected to dilute the company’s earnings by 11-21 cents per share in fiscal 2018 (ending June 2018). The projection includes the impact of 12-13 cents of one-time charges.
Moreover, the above graph reveals that Applied Industrial’s gross profit margin has been sliding since the beginning of fiscal 2018. In fiscal second quarter, gross margin was down 20 basis points year over year on account of inventory inflationary headwinds.
Notably, Applied Industrial has also lowered its earnings per share projection for fiscal 2018 to $3.19-$3.39 from the earlier estimate of $3.40-$3.50.
We fear that impending headwinds such as stiff industry rivalry, consolidation among major supplies/customers or a sudden supply chain challenge might weigh on the company’s near-term growth prospects.
Applied Industrial anticipates bolstering its sales by 15-16% in fiscal 2018, higher than the prior guidance of 6-7%. The company perceives that tailwinds prevailing in the industrial end-markets and FCX Performance buyout will support the upside of its top-line results. Notably, in the first 12 months, FCX Performance acquisition is anticipated to boost Applied Industrial’s sales by $555-$560 million.
Moreover, the company perceives that implementing numerous restructuring programs (especially in the upstream oil and gas businesses) as well as lower corporate tax rates will aid in boosting its profitability, going forward.
Get The News You Want
Also, Applied Industrial is highly committed toward returning value to its shareholders through lucrative dividend payments and share buyback offers. During the reported quarter, the company repurchased 145,800 shares for $9 million. Notably, as of Dec 31, 2017, the company had residual authorization to buy back an additional 1,056,700 shares. Moreover, in January 2018, the company increased its quarterly cash dividend rate by 3.4%
Stocks to Consider
A few better-ranked stocks within the same space are listed below:
Kawasaki Heavy Industries Ltd. (OTC:KWHIY) sports a Zacks Rank #1 (Strong Buy). The company’s earnings per share (EPS) are projected to grow 21.6% in the next three to five years. You can see Zacks Investment Research
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.