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Reasons Why You Should Avoid Investing in Kennametal (KMT) Now
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Kennametal Inc. (KMT - Free Report) has lately been grappling with weakness in its transportation end-market due to supply-chain constraints. Escalating expenses and foreign currency-related headwinds are added concerns.
Image Source: Zacks Investment Research
The currently Zacks Rank #4 (Sell) player has a market capitalization of $1.9 billion. Due to the above-mentioned woes, the stock has lost 38.2% compared with the industry’s decline of 36.5% in the past six months.
Let’s discuss the factors in detail that clearly underline our view that investors should get rid of this stock from their portfolios now.
Weak End-Market Conditions: Incessant softness in Kennametal’s transportation end market due to supply-chain constraints, mainly related to chip availability, remain a cause for concern. Revenues in the transportation end market decreased 7% on a year-over-year basis in the third quarter of fiscal 2022 (ended Mar 31, 2022).
Steep Costs and Expenses: Challenges related to escalating costs and expenses pose a threat to Kennametal. In the first nine months of fiscal 2022, the cost of goods sold jumped 5.8% year over year, while operating expenses increased 5.7%. Operating income decreased $13 million due to high raw material costs in third-quarter fiscal 2022. Cost inflation is likely to have affected its margins and profitability in the fourth quarter of fiscal 2022 (ending Jun 30, 2022).
Highly Leveraged Balance Sheet: High debt level remains a concern for Kennametal. While exiting the fiscal third quarter, its net debt was $522 million and total debt was $622 million, up 5.2% and 2%, respectively, year over year. KMT’s cash and cash equivalents of $100 million do not seem impressive considering its debt profile.
Unfavorable Forex: Kennametal’s extensive presence across international markets exposes its operations to risks associated with unfavorable movements in foreign currencies and geopolitical issues. Adverse forex had an impact of 4.6% year over year on the revenues of the Asia-Pacific region in third-quarter fiscal 2022. Also, foreign exchange headwinds affected Kennametal’s sales 4% in the quarter.
Southbound Estimate Trend: In the past 60 days, the Zacks Consensus Estimate for KMT’s fiscal 2022 earnings has declined 1.1% to $1.73.
Stocks to Consider
Two better-ranked companies from the industrial products sector are discussed below:
GEF’s earnings estimates have increased 17.4% for fiscal 2022 (ending October 2022) in the past 60 days. Its shares have inched up 3.2% in the past six months.
Titan International, Inc. presently has a Zacks Rank of 1. Its earnings surprise in the last four quarters was 56.4%, on average.
In the past 60 days, TWI’s earnings estimates have increased 43.3% for 2022. The stock has rallied 25.1% in the past six months.
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Reasons Why You Should Avoid Investing in Kennametal (KMT) Now
Kennametal Inc. (KMT - Free Report) has lately been grappling with weakness in its transportation end-market due to supply-chain constraints. Escalating expenses and foreign currency-related headwinds are added concerns.
Image Source: Zacks Investment Research
The currently Zacks Rank #4 (Sell) player has a market capitalization of $1.9 billion. Due to the above-mentioned woes, the stock has lost 38.2% compared with the industry’s decline of 36.5% in the past six months.
Let’s discuss the factors in detail that clearly underline our view that investors should get rid of this stock from their portfolios now.
Weak End-Market Conditions: Incessant softness in Kennametal’s transportation end market due to supply-chain constraints, mainly related to chip availability, remain a cause for concern. Revenues in the transportation end market decreased 7% on a year-over-year basis in the third quarter of fiscal 2022 (ended Mar 31, 2022).
Steep Costs and Expenses: Challenges related to escalating costs and expenses pose a threat to Kennametal. In the first nine months of fiscal 2022, the cost of goods sold jumped 5.8% year over year, while operating expenses increased 5.7%. Operating income decreased $13 million due to high raw material costs in third-quarter fiscal 2022. Cost inflation is likely to have affected its margins and profitability in the fourth quarter of fiscal 2022 (ending Jun 30, 2022).
Highly Leveraged Balance Sheet: High debt level remains a concern for Kennametal. While exiting the fiscal third quarter, its net debt was $522 million and total debt was $622 million, up 5.2% and 2%, respectively, year over year. KMT’s cash and cash equivalents of $100 million do not seem impressive considering its debt profile.
Unfavorable Forex: Kennametal’s extensive presence across international markets exposes its operations to risks associated with unfavorable movements in foreign currencies and geopolitical issues. Adverse forex had an impact of 4.6% year over year on the revenues of the Asia-Pacific region in third-quarter fiscal 2022. Also, foreign exchange headwinds affected Kennametal’s sales 4% in the quarter.
Southbound Estimate Trend: In the past 60 days, the Zacks Consensus Estimate for KMT’s fiscal 2022 earnings has declined 1.1% to $1.73.
Stocks to Consider
Two better-ranked companies from the industrial products sector are discussed below:
Greif, Inc. (GEF - Free Report) presently sports a Zacks Rank #1 (Strong Buy). GEF delivered a trailing four-quarter earnings surprise of 22.9%, on average. You can see the complete list of today’s Zacks #1Rank stocks here.
GEF’s earnings estimates have increased 17.4% for fiscal 2022 (ending October 2022) in the past 60 days. Its shares have inched up 3.2% in the past six months.
Titan International, Inc. presently has a Zacks Rank of 1. Its earnings surprise in the last four quarters was 56.4%, on average.
In the past 60 days, TWI’s earnings estimates have increased 43.3% for 2022. The stock has rallied 25.1% in the past six months.