Astec Looks Attractive on Restructuring, Investment Actions - Analyst Blog

We have issued an updated research report on Astec Industries, Inc.ASTE on Apr 10, 2015. The company is poised to benefit from continuous investment in increasing capacity, introduction of new products, acquisitions as well as organic growth. Astec's growth will also be driven by restructuring actions, increased orders and backlog.

Acquisitions remain a key piece of Astec's growth strategy along with organic growth and targeted sales growth efforts, both in the U.S. and international markets. The acquisitions of Peterson Pacific in 2007 and IMI in 2009 positioned Astec as a potential turnkey systems supplier to the waste-wood processing industry.

Further, the GEFCO and STECO acquisitions have helped expand the potential customer base for Astec's existing oil and gas drill rig product. In addition, the Telestack acquisition, made on Apr 1, 2014, should be instrumental in driving earnings growth for the company. The buyout will further add large port and mining material handling systems, and boost Astec's product portfolio.

Astec continues to invest significantly in increasing its capacity for manufacturing new products as well as upgrading its existing products. The company incurred $24.8 million as capital expenditures in 2014 and expects the figure to be around $30 million for 2015.

Introduction of products such as stabilizers, new models at Roadtec and pump trailers will effectively contribute to sales growth. In addition, the company remains committed to improve sales volume in the long term and continues to work toward increasing competitive sales volume.

In late Jan 2015, Astec announced that it would close operations at the GEFCO Loudon, TN, facility, effective May 31, 2015 due to the low price of oil and overcapacity. The product lines and related inventory at Loudon will be relocated and consolidated at the GEFCO Enid facility. Though the company will incur a charge of roughly $1 million in second-quarter 2015 related to this move, the expected cost savings in the year will compensate for the restructuring costs.

Astec also remains optimistic about the progress at the Hazlehurst, GA, wood pellet plant. For this plant, line one continues to run to capacity, line two is installed and will be in testing during the first quarter, and line three is being installed. Ultimately, the order for three of those lines is valued at $60 million. Astec has been recognizing some costs for the wood pellet plants since last year and will recognize the revenue for this plant. The start-up of this pellet plant has created strong interest and will remain a tailwind for the company in the future.

Astec's total backlog increased 11.4% to a record $332 million as of Dec 31, 2014, driven by growth in domestic as well as international backlog. Management remains optimistic about business prospects in the first quarter and full-year 2015. Moreover, Astec will benefit from continued strength in heaters, increased sales of wood chippers and grinders, and the positive long-term outlook for Brazil.

Furthermore, the estimates for Astec have moved upward over the past 60 days. The Zacks Consensus Estimate for 2015 increased 2.3% to $2.19 per share and improved 3.3% to $2.52 per share for 2016.

Astec carries a Zacks Rank #2 (Buy).

Other Stocks That Warrant a Look

Other well-ranked stocks in the same industry include AO Smith Corp. AOS , Berry Plastics Group, Inc. BERY and Sealed Air Corp. SEE . All these stocks carry a Zacks Rank #2.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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