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Timken (TKR) Stock Up 18% YTD: Will the Rally Continue?

Zacks Equity Research

The Timken Company TKR has been performing well on the back of encouraging outlook for 2019, focus on acquisitions, pricing initiatives and cost reduction efforts. Notably, shares of the company have surged 17.7% year to date, outperforming the industry's growth of 8%. Meanwhile, the Zacks S&P 500 composite has rallied 17.1% in the same timeframe.

Timken has a market capitalization of $3.3 billion. Average volume of shares traded in the last three months was 600.4K.

The company has a Zacks Rank #3 (Hold) and a VGM Score of A. Here V stands for Value, G for Growth and M for Momentum. The company's score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. In fact, 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.

Let’s delve deeper and analyze the reasons behind the stock’s impressive price performance and find out if there is room for further appreciation:

Upbeat Q2: The company’s second-quarter 2019 adjusted earnings per share improved 14.4% year over year to $1.27. Revenues of $1 billion also grew 10% year over year. Results were driven by favorable price and mix, and acquisitions.

Upbeat Guidance: For fiscal 2019, Timken anticipates adjusted earnings between $4.80 and $5.00 per share. The mid-point of the guidance suggests year-over-year growth of 17.7%. Earnings for the current year will benefit from favorable price and mix, higher volumes and improved manufacturing performance.

On the top-line front, Timken now expects 2019 total revenues to be up 7-9% year on year, driven by strong organic growth in the Process Industries segment and acquisitions. The company also expects steady demand growth in its products and services. Further, strength in wind, solar and aerospace market is likely to mitigate weak highway and heavy truck markets. The company continues to mitigate tariff impact through pricing initiatives. Moreover, cost-reduction initiatives will drive margins
Positive Earnings Growth Projections:  The Zacks Consensus Estimate for the company’s earnings for the ongoing year is currently pegged at $4.86, suggesting growth of 16.22% from the year-ago quarter. The same for 2020 stands at $5.05, indicating an improvement of 3.99% from the year-ago reported figure.

The stock also has long-term expected earnings per share growth rate of 8.5%, higher than the industry’s growth rate of 7.2%.

Growth Drivers in Place: Timken is benefiting from acquisitions and divestitures. Last year, the company acquired Rollon, Cone Drive and ABC Bearings and divested the ICT Business. In the second quarter of 2019, Timken acquired Diamond chain for $84.9 million. Notably, these buyouts are likely to add 7% to the top line for the current year.

Recently, Timken entered into an agreement to acquire BEKA Lubrication that will strengthen its global leadership in the automatic lubrication systems market sector and expand presence in Europe and Asia. The acquisition will also create opportunities for Timken to serve wind and other industrial end markets better. The company is also poised to benefit from cost synergies for acquisitions. Timken continues to expand market share with differentiated products, engineering innovation and industry-leading customer service.

Timken is focused on a balanced approach to stoke growth, margins, returns and cash flow through industrial cycles.

Stocks to Consider

Some better-ranked stocks in the Industrial Products sector are Atkore International Group Inc. ATKR, Cintas Corporation CTAS and Sharps Compliance Corp SMED, each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Atkore International Group has a projected earnings growth rate of 19.8% for the current year. The stock has gained 59% so far this year.

Cintas has an estimated earnings growth rate of 12.74% for 2019. Shares of the company have rallied 60% year to date.

Sharps Compliance has an estimated earnings growth rate of 500% for 2019. The company’s shares have appreciated 17% so far this year.

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