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Here’s Why Applied Industrial Is a Solid Portfolio Pick


The U.S. GDP growth in the January-March quarter of this year was reportedly the highest in any first quarter since 2015. At full employment, the economy is currently displaying remarkable strength in both business and consumer confidence.

Robust economic momentum will likely bolster infrastructure spending in the United States. Against this backdrop, allocating your hard-earned money in selective industrial stocks will likely prove a masterstroke move.

Among the numerous potential gainers in the Industrial Products sector, adding Applied Industrial Technologies, Inc. AIT to your portfolio will bear fruit.

Reasons for the Bullish Run

Revenue Prospects: Applied Industrial’s revenues improved 6.7% organically in third-quarter fiscal 2018 (ended March 2018). The company expects that sturdier industrial end-markets’ demand and favorable foreign currency translation will continue to drive its top-line performances in the quarters ahead. Notably, Applied Industrial currently anticipates to secure revenue growth within the range of 17.5-18.5% for fiscal 2018 (ending June 2018), higher than the prior projection of 6-7%.

Per our estimates, the company’s projected year over year revenue growth is 18.3% and 15.9% for fiscal 2018 and 2019, respectively.

Over the past year, this Zacks Rank #1 (Strong Buy) stock has rallied 17.7%, outperforming 8.1% growth recorded by the sector.

Profitability: Applied Industrial pulled off an average positive earnings surprise of 11.61%, over the trailing four quarters. The company’s adjusted earnings in the fiscal third quarter surpassed the Zacks Consensus Estimate by 23.5% and came in 40% higher than the year-ago tally.

Profitability in the upcoming quarters is expected to rally on the back of disciplined cost management, increased productivity, new enterprise resource planning investments and lower corporate tax rates. Notably, the company currently anticipates to report revenue within the range of $3.51-$3.61 per share for fiscal 2018, higher than the previous expectation of $3.40-$3.50 per share.

The Zacks Consensus Estimate for the company’s earnings in fiscal 2019 has been revised upward by 4.9% to $4.67 per share, in the past 30 days.

Acquisition Picture: Applied Industrial has been steadily strengthening its business on strategic acquisitions. For instance, acquisition of Sentinel Fluid Controls (Mar 6, 2017) has been strengthening the company’s Fluid Power business. Moreover, the FCX Performance buyout (January 2018) is also fortifying the company’s Specialty Flow Control business.

The company stated that FCX Performance will bolster its sales by $550 million, and earnings before interest, taxes, depreciation and amortization (EBITDA) by $68 million, within 12 months of the deal’s closure. Notably, this acquisition is anticipated to drive earnings for fiscal 2019.

Shareholders’ Payback: Applied Industrial intends to boost its shareholders’ value on the back of lucrative dividend payments and share buyback programs. In the first nine months of fiscal 2018, the company repurchased 393,300 shares for $22.8 million and had left another 1,056,700 authorized shares as of Mar 31, 2018. Moreover, Applied Industrial also raised its quarterly cash dividend rate by 3.4% in the fiscal second quarter (ended December 2017), in a bid to provide higher returns to its existing shareowners.

Other Stocks to Consider

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

Twin Disc, Inc. TWIN currently sports a Zacks Rank of 1. The company delivered an average positive earnings surprise of 250.43% for the last four quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.

Graco Inc. GGG also flaunts a Zacks Rank #1, at present. The company delivered an average positive earnings surprise of 12.81% for the last four quarters.

Kaman Corp. KAMN currently carries a Zacks Rank #2 (Buy). The company delivered an average positive earnings surprise of 5.96% for the last four quarters.

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