The Timken Company TKR is poised to benefit from its acquisition strategy, which is intended to boost market share and strengthen product offerings. Moreover, the company’s actions to enhance liquidity, reduce costs and generate strong cash flow are noteworthy.
The company currently has a Zacks Rank #1 (Strong Buy) and 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), make solid investment choices.
You can see the complete list of today’s Zacks #1 Rank stocks here.
The stock has gained 46% over the past year, outperforming the industry’s growth of 2.9%. The stock has also performed better than the S&P 500 and the Industrial Products Sector’s rally of 17.5% and 18.0%, respectively.
Notably, Timken has a number of other aspects that make it a solid investment choice.
Positive Estimate Revision Activity: The Zacks Consensus Estimate for the company’s earnings estimates for the third quarter and 2020 have moved north by 30% and 35%, respectively, over the past 60 days. Also, earnings estimates for the next year have improved 19% in the past few days.
Earnings Growth Prospects: Timken has delivered an earnings growth rate of 23.4% over the past five years, ahead of the industry’s 8.4%. The momentum is likely to continue as evident from its estimated long-term earnings growth rate of 2.6%.
Timken’s products are essential for efficient and reliable operation of industrial equipment globally. Demand for the company’s products will remain strong in the years to come. Its diversity in terms of end market, customer and geography, product innovation, and engineering expertise provide it with a competitive edge.
Earnings Surprise History: The company has a trailing four-quarter earnings surprise of 49.5%, on average.
Solid Acquisition Strategy: Timken continues to pursue strategic acquisitions to broaden its portfolio and capabilities across diverse markets with focus on bearings, adjacent power transmission products and related services. In 2018, the company acquired Rollon, Cone Drive and ABC Bearings.
In 2019, Timken completed the buyout of BEKA Lubrication and the Diamond Chain Company. The acquisition of BEKA Lubrication strengthened the company’s global leadership in the automatic lubrication systems market sector. It also expanded its geographic reach in Europe and Asia, and strengthened its position in lucrative markets such as wind and food and beverage. Diamond Chain reinforces Timken's leadership in high-performance roller chains for industrial markets. These acquisitions have strengthened the company's global presence in growing markets, particularly China and Europe. These buyouts are expected to deliver significant cost and revenue synergies in the days ahead.
Cost Savings to Boost Margins: Timken is taking actions to enhance liquidity, reduce costs and generate strong cash flow. During second-quarter 2020, it implemented temporary salary reductions, work furloughs and other actions to reduce costs. Recently, the company began expanding and accelerating certain structural cost reduction initiatives to align costs with near-term demand expectations and improve long-term profitability. Timken anticipates these structural cost reduction actions and other cost reduction initiatives to generate approximately $50-60 million of total year-over-year savings in the second half of 2020. These actions will help sustain margins amid lower volumes.
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. While Silgan and IIVI sport a Zacks Rank #1, SiteOne carries a Zacks Rank of 2, currently.
Silgan has a projected earnings growth rate of 28.7% for 2020. The company’s shares have appreciated 28.4% over the past year.
IIVI has an estimated earnings growth rate of 29% for the ongoing year. The company’s shares have gained 18.1% in a year’s time.
SiteOne Landscape has an expected earnings growth rate of 15.4% for the current year. The stock has surged 61.6% over the past year.
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