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Here's Why Kaman (KAMN) is Attractive Investment Option Now

Zacks Equity Research

Kaman Corporation KAMN currently seems to be a smart choice for investors seeking exposure in the machinery space. Solid fundamentals and positive revision in earnings estimates are reflective of healthy growth potential of the stock.

This Bloomfield, CT-based company currently sports a Zacks Rank #1 (Strong Buy) and has a VGM Score of A. It belongs to the Zacks Manufacturing – General Industrial industry, which comes under the ambit of the Zacks Industrial Products sector.

We believe that the strengthening housing market, infrastructural development, lower taxes with the implementation of the U.S. Tax Cuts and Jobs Act, solid manufacturing activities, and other tailwinds will aid industrial machinery companies. Further, healthy demand in the commercial and military aerospace markets is a boon.

Below we discussed why investing in Kaman will be a smart choice.

Financial Performance & Earnings Estimates: The company delivered impressive results in the first quarter of 2019. Its adjusted earnings of 57 cents per share surpassed the Zacks Consensus Estimate by 54.05%. It is worth mentioning here that the company delivered a positive average earnings surprise of 15% in the last four quarters.

For 2019, Kaman anticipates gaining from healthy business, efforts to invest in growth opportunities and work on reducing debts. Impressive first-quarter performance and growth prospects created positive sentiments for the stock. Earnings estimates for the company have been revised upward in the past 60 days. Currently, the Zacks Consensus Estimate for Kaman’s earnings is pegged at $2.95 for 2019, reflecting growth of 1% from the 60-day-ago figure.

Kaman Corporation Price and Consensus


Kaman Corporation Price and Consensus

Kaman Corporation price-consensus-chart | Kaman Corporation Quote

In the past three months, the company’s shares have gained 9% compared with the industry’s growth of 5.5%.

Healthy Aerospace Business: The company engages in manufacturing aircraft bearings, aero structures, miniature ball bearings and others through the Aerospace segment. Kaman believes that focus on innovation, solid demand for existing products, investments to boost growth opportunities and solid orders will be boons for segmental growth in the quarters ahead.

For 2019, the company anticipates Aerospace sales to be $730-$760 million, higher than the previously mentioned $720-$750 million.

Divestment of Distribution Segment: Kaman recently reached an agreement to divest its Distribution segment to units associated with Littlejohn & Co., LLC. The move is in sync with the company’s aim to drive shareholder value.

The divestment, when completed, is likely to help Kaman solidify balance sheet and focus on its more attractive aerospace business.

Shareholder-Friendly Policies: The company effectively uses capital for rewarding shareholders handsomely through dividend payments and share buybacks.

In the first quarter of 2019, it paid dividends worth $5.6 million to its shareholders and purchased treasury stocks worth $3 million. In 2018, dividend payments totaled $22.3 million and purchase of treasury shares was $19.3 million.

Debt Profile: Kaman’s long-term debt totaled $274.2 million at the end of the first quarter of 2019. This balance reflects a decline of 3.5% from the previous quarter. The company’s debt profile is better than the industry. Its long-term debt/capital of 34.5% is lower than the industry’s 43.6%.

Other Key Picks

Some other top-ranked stocks in the sector are Roper Technologies, Inc. ROP, Chart Industries, Inc. GTLS and Flowserve Corporation FLS. While Roper sports a Zacks Rank #1, both Chart Industries and Flowserve carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 30 days, earnings estimates for Roper and Chart Industries have improved for the current year while remained unchanged for Flowserve. Further, average earnings surprise for the last four quarters was positive 8.43% for Roper, 16.56% for Chart Industries and 0.49% for Flowserve.

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