On Jul 2, 2013, we downgraded our recommendation on the
) to Underperform from Neutral, based on the company's gloomy
Why the Downgrade?
Actuant's Engineered Solutions segment has been undergoing a
difficult phase of operation, harming the total revenue of the
company. Core sales in the segment declined 10% year over year in
the fiscal third quarter 2013, due to lower volumes. This trend
is expected to continue in the near term as well.
Actuant's operations are scattered over more than thirty
countries worldwide, making it prone to foreign currency exchange
risk. Moreover, since the company receives revenues in the
currency terms of the region of operations, strengthening of the
U.S. dollar makes it difficult for the company's revenue
With the divestiture of the Electrical segment combined with
higher free cash flow generation, Actuant expects to have roughly
$1 billion worth of capital available for deployment, which the
company intends to use for future acquisitions. With such a large
amount of cash at its disposal, a larger acquisition can be
anticipated, which may also increase the potential risks, such as
lack of synergy.
Subsequent to the results, Actuant has been facing a downward
revision of most of its estimates. Zacks Consensus Estimate for
fiscal 2013 declined 13.4% to $1.88 over the last thirty days.
For fiscal 2014, the Zacks Consensus Estimate now stands at
$2.02, declining 16.2%, over the same timeframe.
Other Stocks to Consider
Not all machinery stocks are performing as poorly as Actuant.
Other stocks which are performing better and possess a favorable
Zacks Rank include
) carrying a Zacks Rank #1 (Strong Buy); also
Applied Industrial Technologies, Inc.
Broadwind Energy, Inc.
) carry a Zacks Rank #2 (Buy), each.
APPLD INDL TECH (AIT): Free Stock Analysis
ACTUANT CORP (ATU): Free Stock Analysis
BROADWIND ENRGY (BWEN): Free Stock Analysis
LINCOLN ELECTRC (LECO): Free Stock Analysis
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