Kennametal's Investment Value High On Solid Potential
Zacks Investment Research | Jun 08, 2016 07:30AM ET
We have issued an updated research report on Kennametal Inc. (NYSE:KMT) on Jun 8, 2016. The company specializes in manufacturing high-speed metal cutting tools, tooling systems and wear-resistant parts for use in industrial and infrastructure end-markets.
From a long-term perspective, Kennametal holds solid organic growth opportunities that promise healthy returns to shareholders. Also, the company’s diversified customer base and its strategic acquisitions will help in expanding the business. On the back of these positives, the company has set for itself some long-term targets (2017−2019), including total revenue growth of 2−3% (Compound Annual Growth Rate – CAGR), earnings before interest and tax margin improvement of 400−500 basis points (bps), earnings per share growth of above 20% (CAGR), free cash flow of more than 10% of sales and improvement of 400−500 bps in return on invested capital.
Also, Kennametal’s ongoing restructuring initiatives have been focused on developing a sound cost structure to improve profits. The company targets to generate annual pre-tax savings of $40−$45 million from Phase 1 of its restructuring activities, while the same is likely to be within $40−$50 million for Phase 2 and $25−$30 million for Phase 3.
Last quarter, Kennametal impressed its investors with better-than-expected results. Earnings of 37 cents per share for third-quarter fiscal 2016 (ended Mar 2016) exceeded the Zacks Consensus Estimate of 24 cents by 54.17%. Also, the quarter’s revenue surpassed the Zacks Consensus Estimate by 3.1%. For fiscal 2016, the company increased its adjusted earnings guidance to $1.05−$1.15 per share from $0.85 to $1.05 per share projected earlier.
Over the last 60 days, the Zacks Consensus Estimate for Kennametal has increased 23.3% to $1.11 per share for fiscal 2016 and 13.8% to $1.32 per share for fiscal 2017.
Kennametal, with a $2 billion market capitalization, currently sports a Zacks Rank #1 (Strong Buy). Other favorably placed stocks in the machinery industry include Gorman-Rupp Co. (NYSE:GRC) , Kadant Inc. (NYSE:KAI) and Nordson Corporation (NASDAQ:NDSN) , each carrying the same Zacks Rank as Kennametal.
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