On Aug 29, 2013, we upgraded our recommendation on
) to Neutral from Underperform, based on the company's inorganic
Why the Upgrade?
We expect Actuant to grow inorganically in the coming
quarters. In fiscal 2012, roughly 8% of the total revenue growth
was derived from the company's acquired assets. Actuant has a
strong balance sheet with cash and cash equivalents of $161.4
million as on May 31, 2013. The company also has a strong free
cash flow position which is expected to increase further in the
coming quarters. Moreover, it expects to generate free cash flow
to the tune of $175.0 million in fiscal 2014, excluding the
divestiture of the Electrical segment.
In August, Actuant acquired the Scotland-based Viking SeaTech
for $225.0 million, paid through the company's available cash and
revolving credit facility. Actuant believes that the similarity
of operations of the two companies will lead to great
Additionally, Actuant is well positioned to benefit from the
rising global energy and infrastructure demand. The company's
operations in the rest of the world (excluding operations in
North America and Europe), accounted for roughly 20% of the total
sales in the third quarter of fiscal 2013. Actuant believes that
it has the potential to increase its sales in the coming
quarters. Moreover, core sales are expected to grow by 3%-5% year
over year in fiscal 2014.
However, we cannot ignore the fact that Actuant's Engineered
Solutions segment's revenues registered a year-over-year fall of
roughly 10% and is expected to decline further in the coming
quarters. Since Actuant operates in over 30 countries globally,
it is exposed to currency rate fluctuation risk. Sales in the
third quarter of fiscal 2013 declined 1% due to negative foreign
currency exchanges. Moreover, the company expects revenues in
fiscal 2014 to be hurt by the same along with a higher effective
Other Stocks to Consider
Actuant currently carries a Zacks Rank #3 (Hold). Other stocks
worth a look in the industry are
Alamo Group, Inc
Barnes Group Inc.
). While Alamo Group carries a Zacks Rank #1 (Strong Buy), AGCO
Corp. and Barnes Group carry a Zacks Rank #2 (Buy).
AGCO CORP (AGCO): Free Stock Analysis Report
ALAMO GROUP INC (ALG): Free Stock Analysis
ACTUANT CORP (ATU): Free Stock Analysis
BARNES GRP (B): Free Stock Analysis Report
To read this article on Zacks.com click here.