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Here's Why It is Appropriate to Retain Kennametal (KMT) Now
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Kennametal Inc. (KMT - Free Report) has been benefiting from steady demand across aerospace & defense, and transportation end markets. Handsome rewards to shareholders add to its appeal.
Based in Latrobe, PA, Kennametal is a manufacturer, marketer and distributor of high-speed metal cutting tools, tooling systems and wear-resistant parts. Its products are marketed through a number of channels to the end users, comprising manufacturers of machine tools, transportation vehicles and various components, airframe, aerospace components, machinery (light and heavy), components (energy-related) and others. KMT currently carries a Zacks Rank #3 (Hold). Shares of the company have gained 2.7% in the past six months against the industry’s 3.9% decline.
Image Source: Zacks Investment Research
Let’s discuss the factors that should influence investors to retain the stock for the time being.
Growth Catalysts of KMT
End Market Strength: Kennametal is expected to benefit from solid momentum in aerospace & defense, and transportation end markets in the quarters ahead. Growth in production for the light vehicle and hybrid project wins bode well. The company is witnessing several positive trends in its key end markets that hold promise for its long-term growth. This includes an increase in U.S. and international defense spend volumes, digitalization and recovery in the transportation end market.
Well-Diversified Portfolio: Kennametal is poised to benefit from its well-diversified portfolio and investments in product development. Some notable products introduced by the company are TopSwiss Inserts, HARVI TE Duo-Lock, KSEM ST Line, Through Coolant ER Collets, FV Geometry Inserts and Chip Fan etc. Also, it remains focused on investing in manufacturing facilities to boost growth. For instance, in December 2022, Kennametal launched a metal cutting inserts manufacturing facility in Bengaluru, India, which bolstered its capability to cater to the increasing demand for existing and new product lines.
Rewards to Shareholders: The company is committed to rewarding its shareholders through dividends and share buybacks. In fiscal 2024 (ended June 2024), Kennametal distributed dividends worth $63.4 million and repurchased shares worth $65.4 million. Recently, the company completed the initial share repurchase program, which was announced in July 2021.
In February 2024, the company’s board of directors authorized another repurchase program worth $200 million, which is valid for three years. Since the inception of its first share repurchase program, it repurchased 7.3 million shares for $200 million. Strong cash flows allow Kennametal to continue its shareholder-friendly policies. In fiscal 2024, its free cash flow increased 3.6% year over year to $175 million.
Some Negatives
Segmental Weakness: Lower volume in general engineering, energy and earthwork end markets, owing to declines in industrial activity and decreased underground mining and road construction activities in the United States, is affecting the Infrastructure segment. Also, reduced oil and gas activities, owing to decreased rig counts in the United States, remain a concern for the segment. Decrease in demand across general engineering and energy end markets, owing to lower industrial activity and delays in wind energy projects, is affecting the Metal Cutting segment’s revenues.
Rising Costs: Kennametal has been witnessing the impacts of high operating expenses over time. Although operating expenses were relatively flat year over year in fiscal 2024, the company incurred higher compensation expenses. The impact of these expenditures is evident in the rise of operating expenses as a percentage of total revenues, which increased 20 basis points to reach 21.2%. In fiscal 2024, the company’s operating margin decreased 100 basis points due to headwinds from higher wages and general inflation.
FLS delivered a trailing four-quarter average earnings surprise of 18.2%. In the past 60 days, the Zacks Consensus Estimate for Flowserve’s 2024 earnings has increased 3.8%.
Crane Company (CR - Free Report) presently carries a Zacks Rank of 2. The company delivered a trailing four-quarter average earnings surprise of 11.2%.
In the past 60 days, the Zacks Consensus Estimate for CR’s 2024 earnings has increased 1.6%.
Ferguson Enterprises Inc. (FERG - Free Report) currently carries a Zacks Rank of 2. FERG delivered a trailing four-quarter average earnings surprise of 2.6%.
In the past 60 days, the consensus estimate for Ferguson’s fiscal 2025 earnings has remained steady.
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Here's Why It is Appropriate to Retain Kennametal (KMT) Now
Kennametal Inc. (KMT - Free Report) has been benefiting from steady demand across aerospace & defense, and transportation end markets. Handsome rewards to shareholders add to its appeal.
Based in Latrobe, PA, Kennametal is a manufacturer, marketer and distributor of high-speed metal cutting tools, tooling systems and wear-resistant parts. Its products are marketed through a number of channels to the end users, comprising manufacturers of machine tools, transportation vehicles and various components, airframe, aerospace components, machinery (light and heavy), components (energy-related) and others. KMT currently carries a Zacks Rank #3 (Hold). Shares of the company have gained 2.7% in the past six months against the industry’s 3.9% decline.
Image Source: Zacks Investment Research
Let’s discuss the factors that should influence investors to retain the stock for the time being.
Growth Catalysts of KMT
End Market Strength: Kennametal is expected to benefit from solid momentum in aerospace & defense, and transportation end markets in the quarters ahead. Growth in production for the light vehicle and hybrid project wins bode well. The company is witnessing several positive trends in its key end markets that hold promise for its long-term growth. This includes an increase in U.S. and international defense spend volumes, digitalization and recovery in the transportation end market.
Well-Diversified Portfolio: Kennametal is poised to benefit from its well-diversified portfolio and investments in product development. Some notable products introduced by the company are TopSwiss Inserts, HARVI TE Duo-Lock, KSEM ST Line, Through Coolant ER Collets, FV Geometry Inserts and Chip Fan etc. Also, it remains focused on investing in manufacturing facilities to boost growth. For instance, in December 2022, Kennametal launched a metal cutting inserts manufacturing facility in Bengaluru, India, which bolstered its capability to cater to the increasing demand for existing and new product lines.
Rewards to Shareholders: The company is committed to rewarding its shareholders through dividends and share buybacks. In fiscal 2024 (ended June 2024), Kennametal distributed dividends worth $63.4 million and repurchased shares worth $65.4 million. Recently, the company completed the initial share repurchase program, which was announced in July 2021.
In February 2024, the company’s board of directors authorized another repurchase program worth $200 million, which is valid for three years. Since the inception of its first share repurchase program, it repurchased 7.3 million shares for $200 million. Strong cash flows allow Kennametal to continue its shareholder-friendly policies. In fiscal 2024, its free cash flow increased 3.6% year over year to $175 million.
Some Negatives
Segmental Weakness: Lower volume in general engineering, energy and earthwork end markets, owing to declines in industrial activity and decreased underground mining and road construction activities in the United States, is affecting the Infrastructure segment. Also, reduced oil and gas activities, owing to decreased rig counts in the United States, remain a concern for the segment. Decrease in demand across general engineering and energy end markets, owing to lower industrial activity and delays in wind energy projects, is affecting the Metal Cutting segment’s revenues.
Rising Costs: Kennametal has been witnessing the impacts of high operating expenses over time. Although operating expenses were relatively flat year over year in fiscal 2024, the company incurred higher compensation expenses. The impact of these expenditures is evident in the rise of operating expenses as a percentage of total revenues, which increased 20 basis points to reach 21.2%. In fiscal 2024, the company’s operating margin decreased 100 basis points due to headwinds from higher wages and general inflation.
Stocks to Consider
Better-ranked companies are discussed below.
Flowserve Corporation (FLS - Free Report) currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
FLS delivered a trailing four-quarter average earnings surprise of 18.2%. In the past 60 days, the Zacks Consensus Estimate for Flowserve’s 2024 earnings has increased 3.8%.
Crane Company (CR - Free Report) presently carries a Zacks Rank of 2. The company delivered a trailing four-quarter average earnings surprise of 11.2%.
In the past 60 days, the Zacks Consensus Estimate for CR’s 2024 earnings has increased 1.6%.
Ferguson Enterprises Inc. (FERG - Free Report) currently carries a Zacks Rank of 2. FERG delivered a trailing four-quarter average earnings surprise of 2.6%.
In the past 60 days, the consensus estimate for Ferguson’s fiscal 2025 earnings has remained steady.