Here's Why It's The Right Time To Buy Altra Industrial (AIMC)

We issued an updated research report on Altra Industrial Motion Corporation (NASDAQ:AIMC) on Dec 20. We believe that a diversified business structure, initiatives to return higher value to shareholders and inorganic activities make this stock an attractive choice for investors seeking exposure in the machinery industry.

The stock carries a Zacks Rank #2 (Buy).

Altra Industrial’s financial performances were better than expected in the last four quarters. The company’s average positive earnings surprise was 17.30%. The stock has seen the Zacks Consensus Estimate for current-year earnings being pegged at $2.05 and $2.32 for 2018, representing year-over-year growth of 31.6% and 12.8%, respectively.

Also, market sentiments have been positive for Altra Industrial with the stock yielding 22.2% return in the last six months. This gain is above 14.7% growth of the industry it belongs to.

Below we discuss why investors should consider adding Altra Industrial’s stock to their portfolio.

Business Diversified & Improving Margin Profile: A well-diversified business has been accretive to Altra Industrial over time. Currently, it serves customers in the energy, general industrial, material handling, metals, mining, special machinery, transportation, turf and garden markets. Also, it operates via 31 production facilities globally and has 23 well-recognized brands.

In addition, the company has undertaken measures to keep a strict check on costs, aiming to boost its margin profile. Per its restructuring and cost-saving strategies, the company intends to lower the strength of its facilities by 20-30% and improve its supply chain worldwide. These initiatives are anticipated to be completed in 2018.

Inorganic Initiatives Drive Growth Opportunities: Acquired assets have over time contributed to Altra Industrial’s expansion. Notably, Stromag business contributed roughly 20.2% to year-over-year sales growth in third-quarter 2017.

The company has acquired Stromag — a well-known tailored-engineered solution provider for customers in various markets — from GKN (LON:GKN) plc in December 2016. Its product portfolio includes clutches and brakes, flexible couplings, limit switches and friction discs. This buyout is anticipated to be accretive to earnings in 2017.

Healthy Returns to Shareholders: Rewarding shareholders handsomely through dividend payments and share buybacks remains a priority for Altra Industrial. Ever since introduced in 2012, the company has hiked its dividend by 300% with the last raise of 13.3% or 2 cents per share having been made in April.

Also, the company currently has full authorization left under its $30 million of share buyback program approved in October 2016.

Impressive ’17 Guidance and Long-Term Targets: Altra Industrial Motion anticipates benefiting from the steadily improving end markets and efforts for improving margins besides synergistic gains from acquired assets. Banking on these aspects, the company has increased its revenue guidance to $860-$870 million from the previous projection of $850-$865 million.

Non-GAAP earnings are expected within $2.00-$2.06 per share, up from the earlier forecast of $1.95-$2.05. These projections compare favorably with the company’s revenues of $708.9 million and earnings of $1.56 in 2016.

In the long term, the company anticipates revenue growth in excess of the Gross Domestic Product. It aims to improve its operating margin by 150 basis points on strategic pricing.

Zacks Rank & Other Stocks to Consider

Altra Industrial currently has $1.4 billion market capitalization. We believe that the above-mentioned positives clearly justify the stock’s current Zacks Rank of 2.

Other stocks worth considering in the industry are Kadant Inc. (NYSE:KAI) , Sun Hydraulics Corp. (NASDAQ:SNHY) and Applied Industrial Technologies, Inc. (NYSE:AIT) . While both Kadant and Sun Hydraulics sport a Zacks Rank #1 (Strong Buy), Applied Industrial Technologies is a Zacks #2 Ranked player. You can see the complete list of today’s Zacks #1 Rank stocks here.

Kadant’s earnings estimates for 2017 and 2018 were revised upward in the last 60 days. Also, the company delivered an average positive earnings surprise of 20.32% in the last four quarters.

Sun Hydraulics pulled off an average positive earnings surprise of 9.58% in the last four quarters. Also, its earnings estimates for 2017 and 2018 have improved in the last 60 days.

Applied Industrial Technologies’ earnings estimates for fiscal 2018 and fiscal 2019 were revised upward in the last 60 days. Also, the company’s average beat in the trailing four quarters was 9.71%.

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Applied Industrial Technologies, Inc. (AIT): Free Stock Analysis Report

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Altra Industrial Motion Corp. (AIMC): Free Stock Analysis Report

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