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Here's Why Investors Should Ignore Applied Industrial (AIT)
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Applied Industrial Technologies, Inc. (AIT - Free Report) seems to have lost its sheen to uncertainties in industrial markets and other headwinds like high debts and forex issues. Also, lowered earnings estimates and weak price performance add to the concerns.
The Cleveland, OH-based company has a market capitalization of $1.8 billion and a Zacks Rank #5 (Strong Sell) at present. It belongs to the Zacks Manufacturing – General Industrial industry, which comes under the ambit of the Zacks Industrial Products sector. The industry is currently at the bottom 31% (with the rank of 176) of more than 250 Zacks industries.
We believe that the industry is suffering from the adverse impacts of cost escalation, induced by freight charges, tariff woes and high labor costs. Also, global uncertainties, unfavorable movements in foreign currencies and the adverse impacts of the coronavirus outbreak add to the woes.
In the last reported quarter, the company’s earnings of 97 cents met estimates, while sales lagged the same by 0.1%. It has a negative earnings surprise of 3.54%, on average, for the last four quarters.
In the past three months, Applied Industrial’s shares have fallen 35% compared with the industry’s decline of 25.8%.
Factors Affecting Investment Appeal
Top-Line Weakness: The company’s organic sales in second-quarter fiscal 2020 (ended December 2019) suffered from challenging conditions in mining, machinery, metals and other markets. In the quarters ahead, industrial demand is expected to be subdued.
For fiscal 2020 (ending June 2020), the company predicts sales to be down 2% to flat year over year, with an organic sales decline of 3-5%. The guidance compares unfavorably with the previously mentioned 2% decline to 2% growth in sales and a fall of 1-5% in organic sales.
Poor Bottom-Line Projection: In second-quarter fiscal 2020, poor sales performance and operating results adversely impacted the company’s earnings.
Applied Industrial expects earnings of $4.20-$4.40 per share for fiscal 2020, down from $4.20-$4.50 stated earlier. Notably, the mid-point of $4.30 of the new projection is 1.1% below the previous mid-point of $4.35. Notably, it reported earnings of $4.41 per share in fiscal 2019 (ended June 2019).
High Debts & Woes Related to International Presence: A highly leveraged balance sheet might increase financial obligations and hurt the profitability of the company. Applied Industrial’s debts increased 46.9% (CAGR) in the last three fiscal years (2017-2019). The metric stood at $874.4 million at the end of the second quarter of fiscal 2020. Also, interest expenses were $9.6 million in the quarter.
Applied Industrial expects interest expenses to be at the high-end of its projection of $37-$38 million in fiscal 2020.
Also, operations in North America, Australia, New Zealand and Singapore have exposed the company to geopolitical issues, macroeconomic challenges and unfavorable movements in foreign currencies.
Bottom-Line Estimate Trend: In the past 60 days, one downward revision in the Zacks Consensus Estimate for Applied Industrial’s earnings has been recorded for both fiscal 2020 and 2021 (ending June 2021). Presently, earnings estimates are pegged at $3.85 for fiscal 2020 and $3.42 for fiscal 2021, suggesting declines of 10.5% and 26.5% from the respective 60-day-ago figures.
Applied Industrial Technologies, Inc. Price and Consensus
Also, earnings estimates of $1.00 per share for third-quarter fiscal 2020 (ended March 2020, results are awaited) and 81 cents for fourth-quarter fiscal 2020 (ending June 2020) reflect declines of 9.1% and 32.5% from the respective 60-day-ago figures.
In the past 30 days, earnings estimates for these companies remained unchanged for the current year. Further, positive earnings surprise for the last four quarters, on average, was 26.6% for Tennant, 10.42% for Broadwind Energy and 1.98% for EnPro Industries.
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
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Here's Why Investors Should Ignore Applied Industrial (AIT)
Applied Industrial Technologies, Inc. (AIT - Free Report) seems to have lost its sheen to uncertainties in industrial markets and other headwinds like high debts and forex issues. Also, lowered earnings estimates and weak price performance add to the concerns.
The Cleveland, OH-based company has a market capitalization of $1.8 billion and a Zacks Rank #5 (Strong Sell) at present. It belongs to the Zacks Manufacturing – General Industrial industry, which comes under the ambit of the Zacks Industrial Products sector. The industry is currently at the bottom 31% (with the rank of 176) of more than 250 Zacks industries.
We believe that the industry is suffering from the adverse impacts of cost escalation, induced by freight charges, tariff woes and high labor costs. Also, global uncertainties, unfavorable movements in foreign currencies and the adverse impacts of the coronavirus outbreak add to the woes.
In the last reported quarter, the company’s earnings of 97 cents met estimates, while sales lagged the same by 0.1%. It has a negative earnings surprise of 3.54%, on average, for the last four quarters.
In the past three months, Applied Industrial’s shares have fallen 35% compared with the industry’s decline of 25.8%.
Factors Affecting Investment Appeal
Top-Line Weakness: The company’s organic sales in second-quarter fiscal 2020 (ended December 2019) suffered from challenging conditions in mining, machinery, metals and other markets. In the quarters ahead, industrial demand is expected to be subdued.
For fiscal 2020 (ending June 2020), the company predicts sales to be down 2% to flat year over year, with an organic sales decline of 3-5%. The guidance compares unfavorably with the previously mentioned 2% decline to 2% growth in sales and a fall of 1-5% in organic sales.
Poor Bottom-Line Projection: In second-quarter fiscal 2020, poor sales performance and operating results adversely impacted the company’s earnings.
Applied Industrial expects earnings of $4.20-$4.40 per share for fiscal 2020, down from $4.20-$4.50 stated earlier. Notably, the mid-point of $4.30 of the new projection is 1.1% below the previous mid-point of $4.35. Notably, it reported earnings of $4.41 per share in fiscal 2019 (ended June 2019).
High Debts & Woes Related to International Presence: A highly leveraged balance sheet might increase financial obligations and hurt the profitability of the company. Applied Industrial’s debts increased 46.9% (CAGR) in the last three fiscal years (2017-2019). The metric stood at $874.4 million at the end of the second quarter of fiscal 2020. Also, interest expenses were $9.6 million in the quarter.
Applied Industrial expects interest expenses to be at the high-end of its projection of $37-$38 million in fiscal 2020.
Also, operations in North America, Australia, New Zealand and Singapore have exposed the company to geopolitical issues, macroeconomic challenges and unfavorable movements in foreign currencies.
Bottom-Line Estimate Trend: In the past 60 days, one downward revision in the Zacks Consensus Estimate for Applied Industrial’s earnings has been recorded for both fiscal 2020 and 2021 (ending June 2021). Presently, earnings estimates are pegged at $3.85 for fiscal 2020 and $3.42 for fiscal 2021, suggesting declines of 10.5% and 26.5% from the respective 60-day-ago figures.
Applied Industrial Technologies, Inc. Price and Consensus
Applied Industrial Technologies, Inc. price-consensus-chart | Applied Industrial Technologies, Inc. Quote
Also, earnings estimates of $1.00 per share for third-quarter fiscal 2020 (ended March 2020, results are awaited) and 81 cents for fourth-quarter fiscal 2020 (ending June 2020) reflect declines of 9.1% and 32.5% from the respective 60-day-ago figures.
Stocks to Consider
Some better-ranked stocks in the industry are Tennant Company (TNC - Free Report) , Broadwind Energy, Inc. (BWEN - Free Report) and EnPro Industries, Inc. (NPO - Free Report) . While Tennant currently sports a Zacks Rank #1 (Strong Buy), both Broadwind Energy and EnPro Industries carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
In the past 30 days, earnings estimates for these companies remained unchanged for the current year. Further, positive earnings surprise for the last four quarters, on average, was 26.6% for Tennant, 10.42% for Broadwind Energy and 1.98% for EnPro Industries.
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
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