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Applied Industrial Upgraded to Buy on Solid Growth Drivers


On Jan 11, Zacks Investment Research upgraded Applied Industrial Technologies, Inc. AIT to a Zacks Rank #2 (Buy) from a Zacks Rank #3 (Hold). Going by the Zacks model, companies holding a Zacks Rank #2 have chances of performing better than the broader market in the next two to three months.

Why the Upside?

Over the last three months, Applied Industrial’s shares have rallied 11.7%, outperforming 7.5% growth registered by the industry.

The company believes elevated sales accrued from stronger service-center distribution, upstream oil and gas, fluid power operations, core service center businesses will likely bolster its revenues in the quarters ahead. Moreover, a favorable foreign currency-translation impact is anticipated to drive the upside.

Applied Industrial has been steadily strengthening its inorganic growth trajectory on the back of acquisitions. On Mar 6, 2017, the company acquired Sentinel Fluid Controls, a premium distributer of lubrication and hydraulic solutions, systems and components. The company anticipates that this buyout will reinforce its Fluid Power business. Applied Industrial stated that acquisition-related benefits drove its revenues in the fiscal first quarter. Moreover, the company’s latest (January 2018) FCX Performance buyout is also expected to boost its top- and bottom-line results in the quarters ahead.

By 2020, Applied Industrial anticipates to generate approximately $3.3 million in revenues, with more than 20% coming in from international operations. Organic revenues are predicted to grow in low-to-mid single digits and acquired assets are expected to contribute in excess of $150 million annually. Also, earnings before interest, tax, depreciation and amortization margin will range within 9-10%, in fiscal 2017, on the back of sales expansion and cost & operational discipline.

Also, Applied Industrial is highly committed toward returning value to its shareholders through dividend payments and share buyback offers. Over the last four years, the company repurchased shares worth $159 million and lowered average shares outstanding by more than 8% to 39.4 million common stock as of the end of fiscal 2017. The company intends to buy back shares worth $10-$15 million in each quarter of fiscal 2018.

Other Stocks to Consider

Some other top-ranked stocks in the same space are listed below:

Colfax Corporation CFX currently carries a Zacks Rank of #1 (Strong Buy). The company’s earnings per share (EPS) are projected to be up 12.3% in the next three to five years. You can see the complete list of today’s Zacks #1 Rank stocks here

Atlas Copco AB ATLKY carries a Zacks Rank of 2. The company’s EPS is predicted to rise 12.5% over the next three to five years.

Barnes Group, Inc. B holds a Zacks Rank of 2. The company’s EPS is estimated to be up 10% during the same time frame.

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