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Reasons to Add Astec Industries (ASTE) Stock to Your Portfolio

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Zacks Equity Research
·5 min read
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Astec Industries, Inc. ASTE is advancing well with its strategy — Simplify, Focus and Grow. Focus on acquisitions, growing part sales volume and international business launch of new products will drive growth. Improvement in order levels and cost reduction actions will also contribute to performance.

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

Let's delve deeper into the factors that make Astec stock a compelling investment option at the moment.

Strong Q4 Earnings Beat

Astec Industries’ fourth-quarter 2020 adjusted earnings per share of 56 cents beat the Zacks Consensus Estimate of 42 cents by a margin of 33%. The bottom line also improved 56% from the prior-year quarter driven by the company’s transformation initiatives taken in 2019 and 2020, which offset the impact of lower revenues amid the coronavirus crisis.

Improving Demand to Aid 2021 Results

The company has been witnessing improvement in order levels lately as evident from year-over-year increase of 37% in total backlog to $360.5 million at the end of 2020 driven by improvement in both its segments. Domestic backlog and international backlog improved 44.3% and 15.4%, respectively.

The company will gain on strong residential construction demand and improvements in non-residential construction. Further, increased US infrastructure spending under the new administration augurs well.

Positive Earnings Surprise History

Astec Industries outpaced the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average surprise being 172.7%.

Price Performance

The stock has soared 91% over the past year, compared with the industry’s rally of 43.6%.

Estimates Moving Upward

The Zacks Consensus Estimate for Astec Industries’ 2021 earnings has moved up 6.3% over the past 30 days, reflecting analysts’ confidence in the stock. The estimate for the next year has moved north by 2.6%.

Solid Growth Projections

The Zacks Consensus Estimate for Astec’s 2021 earnings is currently pegged at $2.72 per share, suggesting year-over-year growth of 14.3%. The estimate for 2022 stands at $3.50, indicating an improvement of 28.7% year over year.

Valuation is Inexpensive

Astec’s forward 12-month EV/EBITDA ratio is 13.5, while the industry's average trailing 12-month EV/EBITDA is 14.2. Consequently, the stock is cheaper at this point based on this ratio.

Growth Drivers in Place

The company is focused on its strategy – Simplify, Focus and Grow that has been designed to deliver profitable growth. Under the Simplify aspect, Astec continues to reduce organizational structure complexity and consolidate and rationalize footprint and product portfolio. The company has transitioned to a two-segment organizational structure and rationalized three sites in Hameln, Germany, Albuquerque, NM and Mequon, WI.

Per the Focus initiative, Astec Industries sold its GEFCO business, thus, eliminating its exposure to the energy industry. It continues to drive operational excellence across organization and optimize product portfolio. In March 2020, the company launched its OneASTEC business model, with the strategic pillars of Simplify, Focus and Grow. The model was designed to better set strategic direction, define priorities and improve overall operating performance. Through the Grow aspect, Astec Industries will focus on innovation, global expansion and disciplined and strategic acquisitions, among others. the company expects to use technology and digital connectivity to enhance customer experience.

In lines with this, Astec Industries acquired two premier full-line concrete batch plant manufacturers — CON-E-CO and BMH in 2020. 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. The company also acquired certain assets of Grathwol Automation, LLC, which is engaged in the business of developing and providing advanced telematics and remote diagnostics for construction equipment and related products and services.

The company remains committed toward improvement of its part sales volume over the long term and growing its international. Astec remains well-poised in the long term backed by the global population growth, increased urbanization and the need to repair the ageing infrastructure.

Other Stocks to Consider

Some other top-ranked stocks in the Industrial Products sector are Deere & Company DE, AGCO Corporation AGCO and Avery Dennison Corporation AVY. While Deere flaunts a Zacks Rank #1, AGCO Corporation and Avery Dennison carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Deere & Company has a projected earnings growth rate of 38.8% for fiscal 2021. Over the past year, the company’s shares have appreciated 112% over the past year.

AGCO Corporation has an estimated earnings growth rate of 42.7% for the ongoing year. The company’s shares have gained 106% in a year’s time.

Avery Dennison has an expected earnings growth rate of 13.7% for 2021. Over the past year, the stock has climbed 45%.

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