Astec (ASTE) Bets on Strong Demand and Strategic Actions
Astec Industries, Inc. ASTE is gaining from strong domestic demand in both its Infrastructure Solutions and Material Solutions segments. It is well-poised to benefit from increased spending on U.S. infrastructure going forward. Focus on acquisitions, growing part sales volume and international business, and the launch of new products will also drive growth. The company’s focus on its OneASTEC business model will also help in improving profitability.
Upbeat Demand Prospects
Domestic demand is particularly strong in both Astec’s Infrastructure Solutions and Material Solutions segments. The increased spending under the Infrastructure Investment and Jobs Act represents a huge opportunity for Astec going forward. This program includes $548 billion in funding for new infrastructure over the course of five years ending 2026, which will be primarily focused on investments in highway and bridge projects.
Funding for the Federal Highway Bill is being deployed. Project activity supported by these funds is ramping. As reported by the American Road & Transportation Builders Association, Federal contracts awards reflected a 30% year-over-year increase for June 2023, which followed a 37% increase in May and 34% in April. A long-term federal legislation provides long-term stability for customers, who are more willing to make capital equipment purchases. This bodes well for Astec.
Reflecting these tailwinds, our model projects revenues to be $1.39 billion in 2023, exhibiting 9% year-over-year growth. Revenues for 2024 and 2025 are expected to be around $1.45 billion and $1.5 billion, respectively. The revenue estimates for both 2024 and 2025 project year-over-year growth of 4%.
Simplify, Focus and Grow Strategy to Aid Growth
Astec has been executing well on its OneASTEC business model, which is based on the strategic pillars of Simplify, Focus and Grow (SFG). This model is designed to deliver improved output, greater efficiency and ensure more reliable systems. It will aid the company in meeting its long-term targets of more than 12% EBITDA margin, earnings per share (EPS) growth of more than 10% and greater than 14% return on invested capital.
This model has been instrumental in mitigating the current supply-chain challenges and logistic disruptions. Astec has recently implemented a restructuring plan to right-size and reduce the fixed cost structure of certain overhead departments.
Per the Simplify aspect, Astec continues to reduce organizational structure complexity and consolidate and rationalize its footprint and product portfolio. Per the Focus initiative, the company sold its GEFCO business which effectively eliminated Astec’s exposure to the energy industry. It continues to drive operational excellence across the organization and optimize the product portfolio. Through the Grow aspect, the company will focus on innovation, global expansion and disciplined and strategic acquisitions, among others.
Currently, the company has two elements of the SFG program in operation, a standardized enterprise resource planning (ERP) system and a gross margin generating lean manufacturing initiative at one of its largest sites. This ERP system will provide standardized processes and integrated technology solutions, enabling the company to leverage automation and process efficiency. In the second quarter of 2023, it converted the operations of one manufacturing site along with corporate to ERP, to set the foundation before accelerating the implementation at additional sites in 2024 and 2025.
Astec is implementing several initiatives to increase capacity to meet higher demand, such as increasing headcount in its manufacturing facilities and investing to expand manufacturing capacity. These actions will accelerate the conversion of its backlog to sales and position the company well to deliver products to customers at the desired time. It is also increasing manufacturing footprint in low-cost territories, which will improve margins and strengthen its international presence. Astec also remains committed to growing its part sales volume and international business.
Price Performance
The stock has gained 33.2% in the past year compared with the industry’s 54% growth.
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Zacks Rank & Other Stocks to Consider
Astec currently sports a Zacks Rank #1 (Strong Buy).
Some other top-ranked stocks in the industrial products sector are Caterpillar Inc. CAT, AptarGroup ATR and Eaton Corporation plc. ETN. CAT sports a Zacks Rank of 1, while ATR and ETN carry a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Caterpillar has an average trailing four-quarter earnings surprise of 18.5%. The Zacks Consensus Estimate for CAT’s 2023 earnings is pegged at $19.81 per share. The consensus estimate for 2023 earnings has moved 11.4% north in the past 60 days. Its shares have gained 51.6% in the last year.
AptarGroup has an average trailing four-quarter earnings surprise of 8.6%. The Zacks Consensus Estimate for ATR’s 2023 earnings is pegged at $4.55 per share. The consensus estimate for 2023 earnings has moved up 0.2% in the past 60 days. ATR shares have gained 23.5% in the last year.
The Zacks Consensus Estimate for Eaton’s 2023 EPS is pegged at $8.80. The consensus estimate for 2023 earnings has moved 4% north in the past 60 days. It has a trailing four-quarter average earnings surprise of 3%. Shares of ETN have rallied 68.8% in the last year.
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