Applied Industrial (AIT) Exhibits Bright Prospects, Risks Persist
Applied Industrial (AIT) is poised to benefit from solid demand for its products, acquired assets and shareholder-friendly policies. Rising costs & expenses and high debt levels remain concerns.
Applied Industrial Technologies, Inc. AIT has been benefiting from the healthy demand for products and solutions in industrial end markets, along with its pricing actions and growth initiatives. The company’s investments in expanding automation, IIoT and digital offerings and customer development initiatives are also likely to drive its performance in the quarters ahead. For fiscal 2022 (ending June 2022), it expects to generate organic sales growth of 7-9% on a year-over-year basis.
The company believes in strengthening its businesses through the addition of assets. In August 2021, the company acquired R.R. Floody, which has been boosting its offerings in the automation technology space. Also, its buyout of Gibson Engineering Company (January 2021) and Advanced Control Solutions (October 2020) enabled it to strengthen and expand its range of automation solutions across various end markets. In first-quarter fiscal 2022 (ended September 2021), buyouts contributed 2.1% to the company's sales.
It focuses on rewarding shareholders through dividend payments and share repurchases. In the fiscal first quarter, Applied Industrial used $12.7 million for paying out dividends and repurchasing shares worth $6.5 million. The quarterly dividend rate was hiked 3.1% in January 2021. Also, at the end of the fiscal first quarter, the company had 388,000 shares left for repurchase under its share repurchase program.
However, it has been dealing with escalating costs and operating expenses. In the fiscal first quarter, the company's cost of sales and selling, distribution and administrative expenses recorded year-over-year increase of 19.6% and 10.5%, respectively. Also, inflation in raw material and supply chain issues in the industrial sector might adversely impact its performance in the near term.
The company’s high-debt profile poses a concern. In the last five fiscal years (2017-2021), its long-term debt increased 22.3% (CAGR). Exiting the fiscal first quarter, its long-term debt balance was high at $730.3 million. Considering its high debt profile, its cash and cash equivalents were just $247.3 million at the end of the quarter. For fiscal 2022, the company expects interest and other expenses to be $31-$32 million.
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In the past six months, this Zacks Rank #3 (Hold) stock has returned 14.2% against the industry’s decline of 0.1%.
Some better-ranked companies from the Zacks Industrial Products sector are discussed below.
Berry Global Group, Inc. BERY presently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Its earnings surprise in the last four quarters was 16.50%, on average.
In the past 30 days, Berry Global’s earnings estimates have increased 0.1% for 2021 (results are awaited) and 0.4% for 2022. BERY’s shares have gained 12.5% in the past six months.
Graco Inc. GGG presently has a Zacks Rank #2 (Buy). Its earnings surprise in the last four quarters was 6.58%, on average.
In the past 30 days, Graco’s earnings estimates have been stable for 2021 (results are awaited) and increased 0.4% for 2022. Its shares have gained 0.8% in the past six months.
AZZ Inc. AZZ presently carries a Zacks Rank #2. Its earnings surprise in the last four quarters was 16.90%, on average.
AZZ’s earnings estimates have increased 2.3% for fiscal 2022 (ending February 2022) and 3.7% for fiscal 2023 (ending February 2023) in the past 30 days. Its shares have lost 0.4% in the past six months.
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