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Astec (ASTE) Surges 34% YTD: What's Driving the Stock?

·5 min read

Astec Industries, Inc. ASTE is making steady progress toward its strategy for profitable growth — Simplify, Focus and Grow. While acquisitions, launch of new products, efforts to grow part sales volumes and international business will drive the top line, cost-reduction actions, restructuring and reorganization initiatives will aid the bottom line.

The company’s shares have gained 34.2% so far this year, compared with the industry’s rally of 15.6%.

Astec has a market capitalization of $1.2 billion. Average volume of shares traded in the past three months was 136.2k.

Let’s delve deeper and analyze the factors driving the stock.

Driving Factors

Better-than-Expected Q3: Astec Industries’ third-quarter 2020 adjusted earnings per share of 20 cents beat the Zacks Consensus Estimate of 11 cents by a margin of 82%. The bottom line also improved 18% from the prior-year quarter. The better-than-expected results were driven by the company’s transformation initiatives taken in 2019 and 2020, which offset the impact of lower revenues amid the coronavirus crisis. Notably, the company has a trailing four-quarter earnings surprise of 156%, on average.

Simplify, Focus and Grow Strategy: Astec remains focused on its strategy for profitable growth — Simplify, Focus and Grow. In sync with this, its transition to a two-segment organizational structure ensures that its products are better aligned to end markets and customers. This move helps streamline the company’s reporting structure. The company has sold its GEFCO business that effectively eliminates its exposure to the energy industry. Astec is in the process of closing its Mequon, WI location, which will enable the company to leverage its presence more efficiently. On Oct 5, 2020, the company sold the remaining of water well assets of its Enid business unit.

Astec is looking for avenues to grow regionally in attractive markets. Astec’s recent acquisition of two premier full-line concrete batch plant manufacturers — CON-E-CO and BMH will significantly strengthen the Infrastructure Solutions group portfolio and provide customers with access to the most robust line of concrete products in the infrastructure industry. The company has 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.
Initiatives to Grow Sales are Advancing Well: Astec also remains committed to introducing new products in the market and growing its part sales volume over the long term. Moreover, the company continues to focus on augmenting international sales through the establishment of newer regional international sales offices and fresh products for international customers.

Astec has a dominant share of the asphalt plant market in North America. It also remains focused on launching new paving equipment for both the domestic and international markets. The introduction of new products from infrastructure group will drive the segment’s revenues. Also, the extension of the Fixing America's Surface Transportation (FAST) Act, will provide much-needed funding certainty to state and local governments navigating significant revenue shortfalls due to the COVID-19 pandemic. This bodes well for the infrastructure solutions segment.

Cost Cuts to Boost Margins: Astec remains focused on implementing initiatives to reduce expenses and conserve cash amid the coronavirus pandemic. These actions include hiring suspension (except for critical positions), reduction in workforce and cutting down discretionary spending.

Low Debt Levels: Further, Astec’s total debt is 0.1% of total capital, much lower than its industry's 71.8%. Astec ended third-quarter 2020 with total available liquidity of $260 million, which includes cash and cash equivalents of $108.5 million. Its times interest earned ratio is at 1.6. Thus, with a strong balance sheet and liquidity position, Astec seems well poised to tide over these turbulent times.

Positive Growth Projections

Over the past 60 days, the Zacks Consensus Estimate for 2020 earnings has been revised upward by 6%. The Zacks Consensus Estimate for 2020 earnings per share is pegged at $1.87, suggesting growth of 20.7% from the prior year.

Zacks Rank & Stocks to Consider

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

Some better-ranked stocks in the Industrial Products sector are Crown Holdings, Inc. CCK, iRobot Corporation IRBT and SiteOne Landscape Supply, Inc. SITE. While Crown Holdings and iRobot sport a Zacks Rank #1 (Strong Buy), SiteOne Landscape carries a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Crown Holdings has a projected earnings growth rate of 11.7% for fiscal 2020. Over the past year, the company’s shares have appreciated 30% year to date.

iRobot has an estimated earnings growth rate of 18.8% for the ongoing year. Year to date, the company’s shares have gained 41%.

SiteOne Landscape has an expected earnings growth rate of 28.6% for 2020. So far this year, the stock has climbed 41%.

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