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Astec (ASTE) Bets on Improving Demand Amid High Input Costs

·4 min read

Astec Industries, Inc. ASTE is poised well to benefit from strong construction demand and increased U.S. infrastructure spending. Further, the company is progressing well on its strategy — Simplify, Focus and Grow that has been designed to deliver profitable growth. Focus on acquisitions, growing part sales volume and international business, and launch of new products will also drive growth. Even though higher steel prices remain a headwind, improvement in order levels and cost reduction actions will contribute to results in the near term.

Improving Order Levels Instill Optimism

The company has been witnessing improvement in order levels lately as evident from year-over-year increase of 71.5% in total backlog to $420.8 million at the end of the first quarter of 2021. This bodes well for the company’s performance in the ongoing quarter.

The company expects to benefit from strong residential real estate demand and improvement in non-residential construction. Further, increased US infrastructure spending under the new administration augurs well for Astec. The Coronavirus Response and Relief Supplemental Appropriations Act has recently been signed into law. This bill will appropriate $10 billion to highway infrastructure projects.

However, steel prices are anticipated to be higher this year amid improving demand and supply constraints. The company is also witnessing tightness in labor availability, increased transportation and logistics costs. Nevertheless, Astec’s cost reduction efforts as well as the recent improvement in order levels will help offset the impact.

The Zacks Consensus Estimate for Astec's 2021 earnings is currently pegged at $2.54 per share, suggesting year-over-year growth of 6.7%. The consensus mark for the same for 2022 stands at $3.53, indicating an improvement of 39% year over year.

Simplify, Focus and Grow Strategy to Aid Growth

Astec is progressing well on its strategy — Simplify, Focus and Grow. Under the Simplify aspect, the company continues to reduce organizational structure complexity, and consolidate and rationalize footprint and product portfolio. The company has transitioned to a two-segment organizational structure and rationalized three sites, and completed the closure of Tacoma facility as part of its ongoing rationalization.

Per the Focus initiative, Astec sold its GEFCO business eliminating its exposure to the energy industry. It continues to drive operational excellence across organization and optimize product portfolio. In March 2020, the company launched its OneASTEC business model to better set strategic direction, define priorities and improve overall operating performance.

Through the Grow aspect, the company will focus on innovation, global expansion, and disciplined and strategic acquisitions. It expects to use technology and digital connectivity to enhance customer experience.

Astec acquired two premier full-line concrete batch plant manufacturers — CON-E-CO and BMH in 2020 to strengthen the Infrastructure Solutions business and provide customers with access to the most robust line of concrete products in the infrastructure industry. Its also acquired certain assets of Grathwol Automation, LLC, which is engaged in the business of developing and providing advanced telematics and remote diagnostics for construction equipment and related products and services. Astec also remains committed toward growing its part sales volume and international business.

Price Performance

The stock has gained 49.8% in the past year, compared with the industry’s rally of 80.2%.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Zacks Rank & Stocks to Consider

Astec currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the industrial products sector are Tennant Company TNC, Encore Wire Corporation WIRE and Arconic Corporation ARNC. All of these stocks sport a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Tennant has an anticipated earnings growth rate of 49.5% for the current year. The company’s shares have gained around 18%, year to date.

Encore Wire has an estimated earnings growth rate of 49.5% for the ongoing year. Year to date, the company’s shares have rallied nearly 36%.

Arconic has a projected earnings growth rate of 447% for the current year. The stock has appreciated around 21% so far this year.

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