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Here's Why You Should Add Astec (ASTE) to Your Portfolio

Zacks Equity Research
·5 min read

Astec Industries, Inc. ASTE is poised to gain from cost-reduction actions, and restructuring and reorganization initiatives. Launch of new products, acquisitions, efforts to grow part sales volumes and international business will also contribute to growth.

The leading manufacturer and marketer of road building equipment, which sells equipment used in each phase of road building from quarrying and crushing the aggregate to applying the asphalt, has a market capitalization of  $1.2 billion. It has a trailing four-quarter earnings surprise of 124.3%, on average.

Shares of the Zacks Rank #1 (Strong Buy) company have gained 24.6% so far this year against the industry’s decline of 7.5%. The S&P 500 has climbed 4.7% during the same period.

Astec has a VGM Score of B. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 or 2 (Buy), offer the best investment opportunities for investors.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Upbeat Q2 Results

Astec’s second-quarter 2020 adjusted earnings per share of 67 cents beat the Zacks Consensus Estimate of 12 cents by a wide margin. The bottom line also improved 81% from the prior-year quarter. The better-than-expected results were driven by the company’s restructuring initiatives taken in 2019 and 2020, which offset the impact of lower revenues amid the coronavirus crisis.

Strategic Sourcing Initiative to Generate Savings

In the wake of the coronavirus pandemic, the company remains focused on implementing initiatives to reduce expenses and conserve cash. These actions include hiring suspension (except for critical positions), reduction in workforce and cutting down discretionary spending.

Astec also anticipates savings from strategic sourcing improvement to grow through the balance of the year as it completes the engineering validation of new vendors and components, and depletes inventory of the existing components and material. The company expects higher cash generation in the days to come, courtesy of better management of building equipment and controlling inventory to keep up with demand.

The company is making steady progress toward its strategy for profitable growth – Simplify, Focus and Grow. In the second quarter, Astec announced the closure of its Mequon, WI location, which will enable the company to leverage its footprint more efficiently. It also recently announced the acquisition of two premier full-line concrete batch plant manufacturers — CON-E-CO and BMH. Both the buyouts 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. Astec is looking for avenues to grow regionally in attractive markets.

New Products, Part Sales to Fuel Growth

Astec remains committed toward the improvement of its part sales volume over the long term. It also intends to improve competitive part sales and service sales. Moreover, the company continues to focus on growing international sales through the establishment of newer regional international sales offices and fresh products for international customers. Astec remains well poised for the long term backed by global population growth, increased urbanization and the need to repair the ageing infrastructure.

Strong Liquidity Position

Astec ended second-quarter 2020 with total available liquidity of $270.6 million, which includes cash and cash equivalents of $119.8 million. The company’s total debt stood at $1.4 million as of Jun 30, 2020. Its total debt is 0.1% of total capital, much lower than its industry's 73.6%. Its times interest earned ratio is at 9.5, higher than the industry’s 5.7. Thus, with a strong balance sheet and liquidity position, Astec seems well poised to sail through these turbulent times.

Positive Growth Estimates

The Zacks Consensus Estimate for the company’s 2020 earnings per share is pegged at $1.76, suggesting growth of 13.6% from the prior-year quarter. The consensus mark for 2021 earnings stands at $2.62, indicating an improvement of 48.7% from the year-ago reported figure.

Estimate Revision Trend

Astec is witnessing positive estimate revision activity for 2020 and 2021. Over the past 30 days, the Zacks Consensus Estimate for 2020 earnings has been revised upward by 50% to $1.76. The Zacks Consensus Estimate 2021 earnings has moved north by 48% to $2.62 over the same period.

Other Stocks to Consider

Some other top-ranked stocks in the Industrial Products sector include Silgan Holdings Inc. SLGN, IIVI Incorporated IIVI and SiteOne Landscape Supply, Inc. SITE. All of these stocks sport a Zacks Rank #1.

Silgan has a projected earnings growth rate of 28.7% for 2020. The company’s shares have gained 35% so far this year.

IIVI has an estimated earnings growth rate of 29% for the ongoing year. The company’s shares have rallied 29% year-to-date.

SiteOne Landscape has an expected earnings growth rate of 15.4% for the current year. The stock has appreciated 35% year to date.

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Astec Industries, Inc. (ASTE) : Free Stock Analysis Report
 
Silgan Holdings Inc. (SLGN) : Free Stock Analysis Report
 
IIVI Incorporated (IIVI) : Free Stock Analysis Report
 
SiteOne Landscape Supply, Inc. (SITE) : Free Stock Analysis Report
 
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