We recently reiterated our Neutral recommendation on
), anticipating the company to perform in line with the broader
CIRCOR INTL (CIR): Free Stock Analysis Report
KENNAMETAL INC (KMT): Free Stock Analysis
NN INC (NNBR): Free Stock Analysis Report
XYLEM INC (XYL): Free Stock Analysis Report
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Kennametal Inc. is a well known name in the machine tools and
accessories industry that manufactures and distributes high-speed
metal cutting tools, tooling systems, as well as wear-resistant
parts. Year to date, the shares of the company have grown 10.7%.
Long-term growth prospects are bright as the company stands at an
advantageous position to leverage benefits from growing demand
especially from the emerging markets. By fiscal 2017, Kennametal
anticipates to double its base business to the $5-$6 billion
range. Besides, long-term targets include achieving organic
growth rate of 6%-10% (CAGR), EBIT % to be greater than or equal
to 15%, earnings per share to grow within 15%-20% (CAGR), capital
expenditures to be 3%-4% of sales, and free cash flow to be
greater than or equal to net income.
Accretive acquisitions and dispositions of non-core assets are
Kennametal's primary tool for a growth strategy which entails
business portfolio shift toward favored growth markets. Benefits
are expected from the company's acquisition of Stellite, Emura
and tungsten materials business from Allegheny Technologies
Incorporated. Recently, synergies expected from the tungsten
materials business were increased by the company.
Also, the policy of rewarding shareholders through dividend
payments and share buybacks will work in favour of the company.
In Jul 2013, a hike of 12.5% or 2 cents in the quarterly dividend
rate was approved by the company's board of directors. Multi-year
share repurchase program has been increased from 12 million
shares to approximately 17 million shares.
Notwithstanding these positives, near-term concerns surrounding
the stock have forced us to remain on the sidelines for
Kennametal. A look into the last reported quarter and the
guidance provided by management justify our concerns.
Kennametal's results in the fiscal first quarter 2014 were
plagued by a decline in organic revenue. Industrial segment
revenue generation was weak in aerospace and defense markets
while it declined 5% in Asia. Infrastructure segment reported 6%
organic revenue decline due to weakness in earthworks, energy and
transportation markets. By region, the segment's performance was
weak in Asia and the Americas.
Based on slower-than-expected recovery in served end-markets, the
company lowered its organic growth rate as well as earnings per
share guidance for fiscal 2014. Kennametal's long-term debt stood
at $703 million; any further increase will likely raise the
company's financial obligations and, hence, prove detrimental to
the company's profitability.
Other Stocks in the Industry
Kennametal Inc. currently has a market capitalization of $3.7
billion. Other stocks to watch out for in the industry are
CIRCOR International, Inc.
), each with a Zacks Rank #1 (Strong Buy).