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Kennametal's Investment Value Falls on End-Market Worries

We have issued an updated research report on Kennametal Inc.KMT on Dec 21, 2015. The company specializes in manufacturing high-speed metal cutting tools, tooling systems and wear-resistant parts for use in industrial and infrastructure end markets.

Kennametal, to combat the adverse impact of weak end-markets and uncertain global conditions as well as to improve profits, has been working toward developing a sound cost structure by rationalizing certain manufacturing facilities and reducing expenses. Recently, the company completed the divestiture of a few non-core assets comprising 11 manufacturing and 7 small facilities from castings, steel-plate fabrication and deburring operations.

However, despite these positive efforts, Kennametal is exposed to risks arising from near-term headwinds led by uncertain global economic conditions and unfavorable foreign currency movements. At the same time, the company faces stiff competition in all businesses from both larger and smaller companies that offer same or similar products and services, or those manufacturing different products for the same use. Also, the company's debt levels, if left unchecked, will increase its financial obligations and subsequently, hurt profitability.

Recently, Kennametal lowered its earnings guidance for fiscal 2016 (ending Jun 2016) citing weakening end-market conditions as the primary reason. Its top-line will suffer setbacks from difficult operating conditions in the oil & gas industry as well as slowdown in the Chinese automotive market and weakness in the U.S. and Chinese coal mining markets.

Also, anticipating a weak revenue scenario, Kennametal expects its earnings per share to fall in a range of 30−60% for fiscal 2016. In Nov 2015, the company had guided fiscal 2016 adjusted earnings within $1.50−$1.70 per share.

We believe market sentiments have been weak for Kennametal, with the share price declining 34.5%, since the company reported disappointing first-quarter fiscal 2016 results on Nov 3. The reduced guidance will likely keep investors apprehensive about the company's prospects.

With a market capitalization of $1.4 billion, Kennametal currently carries a Zacks Rank #5 (Strong Sell). Better-ranked companies in the same sector include Encore Wire Corp. WIRE , Unifi Inc. UFI and John Bean Technologies Corporation JBT . While Encore Wire sports a Zacks Rank #1 (Strong Buy), both Unifi Inc. and John Bean Technologies carry a Zacks Rank #2 (Buy).

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KENNAMETAL INC (KMT): Free Stock Analysis Report

ENCORE WIRE CP (WIRE): Free Stock Analysis Report

UNIFI INC (UFI): Free Stock Analysis Report

JOHN BEAN TECH (JBT): Free Stock Analysis Report

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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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