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Kennametal to Gain From Growth Initiatives Amid Pandemic Woes


On Jun 29, we issued an updated research report on Kennametal Inc. KMT.

In the past three months, this Zacks Rank #3 (Hold) stock has gained 49.6% compared with the industry’s growth of 31.5%.

Existing Business Scenario

Kennametal is benefiting from growth, modernization and simplification initiatives. The company’s growth initiative is strengthening its top-line performance through improvement in its commercial execution. Also, with its simplification initiative, it has been boosting its operational efficiency and reducing costs. In addition, the modernization initiative, which is underway is contributing to strong operating leverage. Notably, these initiatives have boosted the company's bottom line by 15 cents per share in the third quarter of fiscal 2020 (ended March, 2020).

In response to the coronavirus crisis, the company has planned to execute several cost-control measures, including the lowering of salaried employees’ compensation, reduction in cash compensation for the board of directors and adjustment of production level. In the quarters ahead, these initiatives will help the company maintain a healthy margin performance amid the crisis.

In addition, the company is committed to rewarding shareholders handsomely through dividend payments. For instance, in the first nine months of fiscal 2020, it paid out dividends worth $49.7 million to shareholders.

However, the company has been suffering from challenging end-market conditions due to the coronavirus outbreak. Notably, the duration of the pandemic and the impacts of the governmental regulations imposed in response to the crisis will likely have a bearing on its results. On uncertainties, regarding the impacts of the outbreak on financial and operating results, it has suspended financial projections for fiscal 2020 (ending June 2020).

Moreover, high debt level is a persistent concern for the company. At the end of the fiscal third quarter, its long-term debt stood at $593.6 million, up 0.1% on a sequential basis. Further, increase in debt levels can raise the company’s financial obligations.

Stocks to Consider

Some better-ranked stocks from the same space are Graphic Packaging Holding Company GPK, Broadwind Energy, Inc. BWEN and Energy Recovery, Inc. ERII. All these companies carry a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Graphic Packaging has a trailing four-quarter positive earnings surprise of 9.59%, on average.

Broadwind delivered a positive earnings surprise of 50.00%, on average, in the trailing four quarters.

Energy Recovery has a trailing four-quarter positive earnings surprise of 66.67%, on average.

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