The Timken Company TKR is likely to benefit from acquisitions to boost market share and strengthen its product offerings. Moreover, the company’s cost-reduction actions and strong free cash-flow generation will boost its margins in the near term. However, the coronavirus pandemic’s impact on operations and end-markets is a concern.
The company currently carries a Zacks Rank #3 (Hold) and 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 (Strong Buy), 2 (Buy) or 3, make solid investment choices.
Timken has delivered an earnings growth rate of 11.9% over the past five years, ahead of the industry’s 3.8%. The momentum is likely to continue as evident from the company’s estimated long-term earnings growth rate of 2.6%.
Let’s delve deeper and analyze the company's potential growth drivers and possible headwinds.
The stock has gained 35.2% over the past three months, outperforming the industry’s growth of 27.1%.
Timken continues to pursue strategic acquisitions to broaden its portfolio and capabilities across diverse markets, with a focus on bearings, adjacent power-transmission products, and related services. In 2018, the company acquired Rollon, Cone Drive and ABC Bearings, and divested the ICT Business. In 2019, Timken completed the buyouts 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. Diamond Chain has fortified 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. The buyouts are expected to deliver significant cost and revenue synergies in the days ahead.
Timken is taking actions to enhance its liquidity, reduce costs and generate strong cash flow. The company has implemented furloughs and salary reductions. It remains focused on improving its working capital and reducing capital expenditure. Meanwhile, the company continues to advance its ongoing strategy — footprint optimization, acquisition integration, and driving operational excellence — to fuel growth. Timken’s cost-reduction actions will help sustain margins amid lower volumes. The company’s cash flow is expected to improve through this year on favorable working capital and cost-saving initiatives.
A Few Headwinds to Counter
The company’s European operations have been hit hard due to the coronavirus pandemic. Moreover, Heavy Truck, Automotive, Off-Highway and Industrial sectors are expected to decline in second-quarter 2020. Given the COVID-19 pandemic’s uncertain impact on its business, Timken has suspended sales and earnings guidance for the current year. It predicts revenues to drop significantly in the second quarter from the prior-year quarter due to weakness in its end markets.
At present, investors might want to hold on to the stock, as it has ample prospects to outperform peers in the near future.
Stocks to Consider
Some better-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. You can see the complete list of today’s Zacks #1 Rank stocks here.
Silgan has a projected earnings growth rate of 11.3% for 2020. The company’s shares have gained 15% in the past three months.
Broadwind Energy has an expected earnings growth rate of 174% for the current year. The stock has appreciated 6% over the past three months.
Axon has an estimated earnings growth rate of 14.4% for the ongoing year. The company’s shares have rallied 21.3% in three months’ time.
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Silgan Holdings Inc. (SLGN) : Free Stock Analysis Report
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