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Here’s Why You Should Add Kadant (KAI) to Your Portfolio Now


We believe that Kadant Inc. KAI is a solid choice for investors who are seeking exposure in the machinery industry.

The stock, with roughly $1.1-billion market capitalization, was upgraded to a Zacks Rank #1 (Strong Buy) on Jun 12.

Kadant delivered better-than-expected results in the last four quarters. Average earnings surprise was a positive 15.50%. Notably, its shares have rallied 3.7% in the past month, outperforming 2.2% growth of the industry.

Why the Upgrade?

We are providing a snapshot of how Kadant fared in the first quarter of 2018. Its earnings of $1.07 per share surpassed the Zacks Consensus Estimate by 11.5%. Net sales went up 45% year over year, on the back of healthy performance of Papermaking Systems and Wood Processing Systems segments. Bookings in the reported quarter grew 53.1% over the year-ago quarter.

In the quarters ahead, Kadant anticipates that growth in the U.S. and the global economy, as well as rising popularity of e-commerce, will strengthen demand for its products from the packaging, tissue and other paper end-market. Also, a healthy U.S. housing market — with housing starts and demand for repair and remodeling activities on the rise — will drive demand for the wood processing market.

For 2018, Kadant anticipates gaining from solid booking performance in the first quarter and favorable global economic conditions. Adjusted earnings per share are anticipated to be $5.15-$5.25, up from $4.95-$5.05 expected earlier. Total revenues are projected to be $625-$635 million, up from the previous projection of $605-$615 million. For the second quarter, adjusted earnings per share are anticipated to be between 95 cents and $1.00.

Moreover, Kadant’s focus on expanding its operations through meaningful buyouts will work in its favor. In July 2017, the company acquired NII FPG Company’s forest products business while adding certain assets of Unaflex, LLC to its portfolio in August 2017. Since acquired, the forest products business buyout has been strengthening the company’s Wood Processing Systems segment while the Unaflex acquisition has been fortifying fluid-handling business in the Papermaking Systems segment.

Kadant’s commitment toward rewarding shareholders handsomely helps in keeping investors interested in the stock. Notably, on May 16, the company announced receiving its board of directors’ approval for a quarterly dividend payment of 22 cents per share as well as authorization to repurchase $20 million worth shares. In March 2018, the company hiked its quarterly dividend rate roughly 4.8%.

In the last 60 days, the company’s earnings estimates for 2018 have been revised upward by two brokerage firms while that for 2019 by one firm. The Zacks Consensus Estimate stands at $5.20 for 2018 and $5.88 for 2019, reflecting an increase of 3.8% and 7.1% from their respective 60-day-ago tallies. Estimates represent year-over-year growth of 15.8% for 2018 and 13.2% for 2019.

Kadant Inc Price and Consensus

Kadant Inc Price and Consensus | Kadant Inc Quote

Other Stocks to Consider

Some other top-ranked stocks in the industry worth considering are Graco Inc. GGG, Twin Disc, Incorporated TWIN and Altra Industrial Motion Corp. AIMC. While both Graco and Twin Disc sport a Zacks Rank #1, Altra Industrial Motion carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the last 60 days, earnings estimates for each of these stocks have improved for the current year. Also, average positive earnings surprise for last four quarters has been 12.81% for Graco, 250.43% for Twin Disc and 5.06% for Altra Industrial Motion.

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