On Tuesday, Baird affirmed its Outperform rating and $250.00 price target for Applied Industrial Technologies (NYSE:AIT), following the company's announcement of an agreement to acquire Hydradyne. The transaction is recognized for its strategic value, as it is anticipated to be immediately accretive to Applied Industrial Technologies' adjusted earnings per share (EPS) in the first year.
Applied Industrial Technologies' decision to purchase Hydradyne, a prominent distributor in the fluid power and motion control sector, is expected to enhance its presence in the Eastern and Southeastern United States. The acquisition is seen as a strategic move that aligns with the management's previously indicated robust pipeline of potential acquisitions.
The financial details of the deal reveal that the purchase price is considerably lower than Applied Industrial Technologies' current trading multiple, which suggests a cost-effective expansion for the company. This aspect of the transaction has been positively noted by Baird, highlighting the favorable valuation of the acquisition.
The deal, which is set to be finalized by the end of 2024, is poised to integrate Hydradyne into Applied Industrial Technologies' operations, potentially bolstering the company's market position and offering growth opportunities within the industry.
The management of Applied Industrial Technologies has expressed confidence in the acquisition, emphasizing its potential to contribute positively to the company's financial performance and strategic objectives. This move is part of the company's ongoing efforts to expand its service offerings and geographic reach, thereby enhancing its competitive edge in the market.
In other recent news, Applied Industrial Technologies has been the subject of several major developments. BofA Securities upgraded Applied Industrial Technologies from Neutral to Buy, increasing the price target from $285 to $315. The firm cited confidence in the company's mergers and acquisitions strategy, which has significantly contributed to earnings per share growth in the past.
The company's recent agreement to acquire Hydradyne, a fluid power distributor, for $272 million was highlighted. This acquisition is expected to enhance Applied's Engineered Solutions segment and increase its presence in the technical industry. The deal is projected to bring in an estimated $260 million in sales and $30 million in EBITDA.
In addition to the acquisition, Applied Industrial Technologies reported mixed results in its Q1 FY2025 earnings call. Despite a 3% year-over-year decline in organic daily sales, the company generated a record free cash flow and raised its EPS guidance for FY2025.
Oppenheimer maintained its Outperform rating and a $305.00 price target for Applied Industrial Technologies following the acquisition announcement. The firm noted the company's continued focus on strategic investments and acquisitions as a key driver of future growth.
InvestingPro Insights
Applied Industrial Technologies' (NYSE:AIT) recent acquisition of Hydradyne aligns well with its strong market performance and financial health, as indicated by several InvestingPro metrics and tips. The company's stock is trading near its 52-week high, with a remarkable 71.51% price total return over the past year. This robust performance is further underscored by the company's consistent dividend history, having maintained dividend payments for 54 consecutive years and raised its dividend for 15 consecutive years.
The acquisition strategy appears to be supported by AIT's solid financial position. With a market capitalization of $10.71 billion and an EBITDA of $540.96 million for the last twelve months, the company has demonstrated its ability to generate substantial cash flows. This financial strength is crucial for supporting strategic acquisitions like Hydradyne.
InvestingPro Tips highlight that AIT operates with a moderate level of debt and its liquid assets exceed short-term obligations, suggesting a strong balance sheet that can accommodate expansion efforts. Additionally, the company's profitability over the last twelve months and analysts' predictions of continued profitability this year indicate a stable financial foundation for growth initiatives.
It's worth noting that while AIT's P/E ratio of 28.27 and Price / Book multiple of 6.11 suggest a premium valuation, this could be justified by the company's strong market position and growth prospects, including the strategic benefits expected from the Hydradyne acquisition.
For investors seeking more comprehensive analysis, InvestingPro offers 17 additional tips for AIT, providing deeper insights into the company's financial health and market position.
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