For Immediate Release
Chicago, IL – June 16, 2017 –Zacks Equity Research Kennametal (NYSE: KMT – Free Report ) as the Bull of the Day, Bioverativ (NASDAQ: BIVV – Free Report ) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Apple (NASDAQ: AAPL – Free Report ).
Here is a synopsis of all three stocks:
Kennametal (NYSE:KMT – Free Report ) is $3.3 billion global supplier of tooling, engineered components and advanced materials consumed in production processes in multiple industries including aerospace, energy, transportation, and machine tools.
Founded in 1938 by metallurgist Philip M. McKenna in Latrobe, PA, Kennametal serves customers in more than 60 countries and in 2017 was named one of the World’s Most Ethical Companies for the 6th consecutive year by the Ethisphere Institute.
Big Top & Bottom Line Turnaround
In late 2014, Kennametal hit a peak in revenues of near $2.9 billion. But the decline to trailing 12-month sales of $2 billion in the December quarter may be the trough of a two-year slide.
Earnings have certainly troughed, with the current fiscal year (ending in June) projected to recover to $1.58 EPS, representing 42% annual growth. And the outlook remains bright with fiscal 2018 forecast by the Zacks analyst consensus to climb another 36.4% to $2.15 EPS.
This earnings turnaround, and a March quarter positive EPS surprise of 39.5%, put KMT shares back to a Zacks #1 Rank in late April.
Great American Industrial Story
I've been screening more lately for stocks specifically in the Industrial sector. Since the domestic and global economies have been sustaining and building momentum for the past year, many "heavy metal" manufacturing and service industries should continue to generate impressive earnings growth.
And when my research put Kennametal on my radar, I was impressed to find such a great American story. From the company website...
In 1938, McKenna invented the first tungsten-titanium carbide alloy for cutting tools that provided a productivity breakthrough in the machining of steel. Kennametal tools cut faster and lasted longer, and thereby facilitated metalworking in products from automobiles to airliners to machinery.
During World War II, Kennametal's annual sales approached $10 million and employment was nearly 900 as the company's tools were used extensively in the war-time economy.
When the wartime boom ended, Kennametal sought new ways to exploit the toughness and wear resistance of tungsten carbide alloys. In the mid-1940s, the company pioneered the use of carbide tooling for mining, which led to the development of the continuous mining machine. Kennametal also found uses for tungsten carbide in demanding specialty applications where resistance to wear was vital, such as in valves, dies, drill bits and snowplow blades.
A Global Tool Box
Kennametal's unique, patented thermit process for producing impact-resistant macrocrystalline tungsten carbide today remains the best way to produce extremely tough tool materials for demanding applications such as mining.
And the company has a rich history of expanding with partners and suppliers in Europe and Asia, including a 1990's manufacturing joint venture for mining tools in China and a metalworking tool manufacturing plant in Shanghai. In 2002, Kennametal acquired Widia, a leading manufacturer and marketer of metalworking tools in Europe and India.
Kennametal maintains its technological leadership through its $30-million Technology Center in Latrobe, Pennsylvania, and complementary facilities in various locations around the globe. The facilities are dedicated to rapid development of products engineered to meet specific customer requirements.
Mid-Cycle Earnings Power of $3.00
Industrial analysts at Jefferies currently have a $50 price target on Kennametal shares, citing that KMT "remains one of the most attractive turnaround stories in our coverage." They see earnings climbing toward $3 EPS and that investors will pay a mid-teens multiple.
KeyBanc analysts have a $48 target on KMT and earlier this month highlighted the positive industry trend coming from the Metalworkings Business Index (MBI), a PMI-style diffusion survey, which increased to 57.1, the highest reading since 2011. The New Orders component was 60.2, up from 57.7 in April.
The analysts noted that metalworking is the primary product offering of Kennametal at roughly 80% of sales, and that demand for metalworking supplies is "a useful indicator for general manufacturing activity as they represent a primary consumable within the production process."
Bottom line: it's not too late to find solid Industrial stocks to participate in the continuing global expansion. The Zacks Rank remains one of your best ways to spot them.
Bioverativ (NASDAQ:BIVV – Free Report ) is a biotechnology company focused on the discovery and commercialization of innovative therapies for the treatment of hemophilia and other rare blood disorders.
The company was spun off from Biogen (NASDAQ:BIIB) in February of this year and reported its first full quarter as a stand-alone company in early May.
Bioverativ is focused on becoming a leading hematology rare disease company. Its approved products include long-acting replacement clotting factors Eloctate for Hemophilia A and Alprolix for Hemophilia B.
Debut Quarterly Report
On May 3, Bioverativ delivered top and bottom line beats and generated over $100 million in cash from operations. In its first report, the company pleasantly surprised investors with non-GAAP 1Q17 EPS of $0.68, well ahead of consensus $0.62. Total revenue of $259 million was +35% year-over-year and easily beat the consensus of $249 million.
Some analysts moved estimates higher after that report. But three weeks later, after the company announced a new acquisition, estimates came down more significantly, pushing the stock to a Zacks #5 Rank (Strong Sell).
These adjustments may be due in part to analysts still getting a firm handle in their models of Bioverativ's sales, expenses, and taxes. Most still rate the company a buy and late May's news only confirmed their longer-term view of the share price and value.
In the past few weeks, full-year 2017 earnings estimates dropped from $2.65 to $2.33. And next year's profit projection fell over 15% from $3.13 to $2.64.
A Bid for Rare Treatments
On May 23, Bioverativ announced that it would be acquiring privately-held, clinical-stage rare disease biotech company True North Therapeutics for $400 million upfront plus assumed cash. The company will also shell out as much as $425 million on the achievement of development, regulatory and sales milestones.
With this acquisition, which is scheduled to close in mid-2017, Bioverativ will add TNT009 to its pipeline. TNT009, True North’s lead candidate, is being evaluated for the treatment of cold agglutinin disease (CAD), a rare and chronic hemolytic condition affecting about 16 people per million globally including 5,000 people in the U.S. There are currently no approved treatments for CAD.
The FDA has granted TNT009 with Breakthrough Therapy Designation as well as Orphan Drug Designation. There are an estimated 5,000 CAD patients in the U.S. and about the same in the EU. Given there is no cure, a lifetime of treatment is expected.
With a potential treatment cost of $100,000 per year, CAD looks like a good pipeline addition for BIVV. Some analysts believe that a price as much as five times this level could be economically feasible if clinical data are compelling.
While we wait for that data, we can also sit out this stock for another quarter until the earnings estimates stop going down and start heading back up.
Additional content:
Apple (AAPL) Trades Down Again: Is It Oversold?
Shares of Apple (NASDAQ: AAPL – Free Report ) slipped again on Wednesday, falling about 1.4% in what is becoming a rare downturn for one of Wall Street’s strongest stocks this year. Several of the other major companies affected by the recent tech selloff have already recovered, but it looks like Apple’s woes could continue as investors grow increasingly hesitant about its upcoming iPhone 8.
Given that this year marks the tenth anniversary of Apple’s iconic iPhone device, consumers have been anticipating a monumental release from the tech behemoth. Speculation that the iPhone 8—or iPhone X according to some rumors—could reignite sales of Apple’s marquee product has been fueling this stock for most of 2017, but investors finally look to be displaying caution here.
AAPL has now slipped more than 6% over the past week, and a sense of uncertainty now looms dangerously above the stock. But is the recent dip actually a great buying opportunity? Is AAPL oversold? Let’s take a closer look.
As its VGM grade of “B” highlights, AAPL remains a relatively sound fundamental stock. In a tech world that has seen P/E ratios inflate to astronomical levels, Apple’s P/E of 16.4 remains sensible, and its other value-related metrics back that up too.
Growth wise, this blue chip isn’t expected to blow anyone out of the water, but projected sales growth of 5% and EPS growth of 7.6% are respectable figures. After 2016 saw Apple’s sales decline for the first time since 2001, a return to growth will be nice to see—but even a massively successful iPhone 8 launch may not reach the peaks we saw in 2015.
As mentioned, there is a growing concern that a homerun debut for the iPhone 8 has already been priced in to AAPL’s current levels, which means a disappointing launch could exacerbate downside volatility. Indeed, Apple has seen two ratings downgrades over the past week, and both notes have mentioned the unrecognized risk related to the company’s upcoming product cycle (also read: Here's Why Apple Stock Is Falling Again Today ).
Also, we should mention that AAPL is currently a Zacks Rank #3 (Hold).
About the Bull and Bear of the Day
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Kennametal Inc. (KMT): Free Stock Analysis Report
BIOVERATIV INC (BIVV): Free Stock Analysis Report
Apple Inc. (NASDAQ:AAPL): Free Stock Analysis Report
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