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

Zacks Equity Research
·5 min read

Astec Industries, Inc. ASTE is poised to gain from cost-reduction actions, restructuring and reorganization moves in the current year despite the impact of the coronavirus pandemic. Launch of new products, 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  $961 million. It has a trailing four-quarter positive earnings surprise of 6.68%, on average.

Over the past year, shares of the Zacks Rank #2 (Buy) company have outperformed its industry. The stock has gained 38.7% against the industry’s decline of 6.2%. Further, the company has outperformed the S&P 500’s rally of 3.9% during the same period.

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

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

Upbeat Q1 Results

Astec‘s first-quarter 2020 adjusted earnings per share of $1.00 beat the Zacks Consensus Estimate of 46 cents by a margin of 117%. The bottom line also improved 54% 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 Yield Savings

In the wake of the coronavirus pandemic, the company continues to implement actions 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, owing to better management of building equipment and controlling inventory to keep up with demand.

The company also recently rolled out its strategy for profitable growth — Simplify, Focus and Grow. The implementation of the Sales and Operations Planning process will help it deal with the changing market scenario. The transition to a two-segment organizational structure ensures that its products are better aligned to end markets and customers.

New Products, Part Sales to Boost 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

The company ended first-quarter 2020 with total available liquidity of $186 million, which includes cash and cash equivalents of $44 million. Its total debt is 0.1% of total capital, much lower than its industry's 72%. Its times interest earned ratio is at 30.8, higher than the industry’s 7.0. Thus, with a solid balance-sheet and liquidity position, Astec seems well poised to sail through these turbulent times.

Estimate Revision Trend

Astec is witnessing a positive estimate revisions for 2020 and 2021. Over the past 60 days, the Zacks Consensus Estimate for its 2020 earnings has been revised upward by 15% to $1.32. The Zacks Consensus Estimate 2021 earnings has gone up 9% to $1.77 over the same period.

Other Stocks to Consider

Some other top-ranked stocks in the Industrial Products sector are Silgan Holdings Inc. SLGN, Broadwind Energy, Inc. BWEN and Axon Enterprise, Inc. AAXN. While Silgan sports a Zacks Rank #1, Broadwind Energy and Axon carry a Zacks Rank of 2 at present.

Silgan has a projected earnings growth rate of 11.3% for 2020. The company’s shares have gained 4% in the past year.

Broadwind Energy has an expected earnings growth rate of 174% for the current year. The stock has appreciated 37% over the past year.

Axon has an estimated earnings growth rate of 14.4% for the ongoing year. The company’s shares have rallied 28% in a year’s time.

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Astec Industries, Inc. (ASTE) : Free Stock Analysis Report
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