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Here’s Why Sandvik (SDVKY) is a Solid Investment Choice Now


We believe that Sandvik AB SDVKY is a solid choice for investors seeking exposure in the machinery space. Strengthening segmental businesses, initiatives to tap business opportunities and inorganic actions bode well.

The stock has been upgraded to a Zacks Rank #1 (Strong Buy) on Oct 7.

Why the Upgrade?

Sentiments have been positive for Sandvik since the beginning of the year. Its shares have yielded 42.7% return year to date, outperforming 30.8% gain recorded by the industry it belongs to.

Also, the stock’s earnings estimates for 2017 have been revised upward by 6.4% to 83 cents per share while that for 2018 have increased 7.2% to 89 cents. Also, these estimates represent year-over-year growth of 28.9% for 2017 and 7.3% for 2018.

Sandvik AB Price and Consensus

Sandvik AB Price and Consensus | Sandvik AB Quote

We believe that strong order growth, roughly 17% year over year, experienced in the second quarter of 2017 clearly signifies growing customers’ preferences for Sandvik’s products. The company offers products through three business segments — Sandvik Machining Solutions, Sandvik Mining and Rock Technology and Sandvik Materials Technology. Also, some of the end markets served by the company, especially automotive, general engineering, energy, mining, construction, aerospace are offering growth opportunities.

In order to leverage benefits from new business opportunities in South Africa, Sandvik has decided to set up a new manufacturing facility in the region. The new unit will assist in production of Sandvik LH115L five-ton LHDs for the local markets. In addition, offering new and innovative products to its customers has been a priority for Sandvik over time. In August, the company unveiled new products including Ranger DXi and the new screening media, Sandvik WX6500.

Also, Sandvik has undertaken various initiatives to strengthen its core businesses in the past few months. In May 2017, the company communicated that it intends to divest the welding and stainless wire businesses in its Sandvik Materials Technology segment while in June, it agreed to dispose Sandvik Process Systems. Upon completion of the divestment of Sandvik Process Systems in 2018, the company anticipates generating significant capital gain. In July, the company decided to divest its Mining Systems business.

Other Stocks to Consider

Sandvik has a market capitalization of approximately $21.2 billion. Other stocks worth considering in the industry include Sun Hydraulics Corporation SNHY, Kennametal Inc. KMT and Stanley Black & Decker, Inc. SWK. While Sun Hydraulics sports a Zacks Rank #1, both Kennametal and Stanley Black & Decker carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Sun Hydraulics pulled off a positive earnings surprise of 33.3% in the last quarter. Its earnings for 2017 and 2018 are anticipated to grow 78.2% and 12.9% over the year-ago respective quarters.

Kennametal’s earnings for 2017 are predicted to grow 44.6% year over year while the same in 2018 are likely to rise 20.7%. Also, the company delivered an average positive earnings surprise of 4.02% in the last four quarters.

Stanley Black & Decker’s earnings estimates for 2017 and 2018 represent year-over-year growth of 11.2% and 11.4%, respectively. Also, it pulled off an average positive earnings surprise of 4.27% for the last four quarters.

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