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Altra Industrial Motion Corp. AIMC has failed to impress investors with its recent operational performance due to tough end-market conditions and other challenges, which are likely to adversely impact its earnings in the near term.
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The currently Zacks Rank #4 (Sell) player has a market capitalization of $2.3 billion. In the past three months, the stock has lost 17.3% compared with the industry’s decline of 10.2%.
Below we discuss why it is better to avoid investing in Altra Industrial stock now.
Soft End-Market Conditions: Persistent softness in AIMC’s renewable energy market due to lower bookings remains a downside for the company. Altra Industrial predicts lower bookings to affect its business in the said market during the first half of 2022. Further, weakness in the aerospace and defense end markets might be concerning for AIMC’s performance.
Steep Costs and Expenses: Altra Industrial is witnessing the adverse impacts of escalating costs and operating expenses. AIMC’s cost of sales, and research and development expenses grew 10.3% and 10.7%, respectively, in the first quarter of 2022. The operating margin (non-GAAP) in the quarter decreased 20 basis points (bps) on a year-over-year basis. Supply-chain headwinds, labor shortages and inflation were worrisome in the first quarter. Supply-chain issues and inflation related to raw materials, logistics and labor costs are expected to persist in the near term.
High Debt Level: Altra Industrial’s profitability can be hurt by a highly leveraged balance sheet. AIMC’s long-term debt remained high at $1,390.7 million, exiting the first quarter of 2022. AIMC’s cash and cash equivalents were $183.7 million in the first quarter, declining 25.4% on a sequential basis. Cash and cash equivalents do not seem impressive considering AIMC’s high debt profile.
Forex Woes: Altra Industrial’s performance is exposed to risks arising from geopolitical tensions, trade relations, adverse movements in foreign currencies and governmental policies, given its widespread presence. Forex woes hampered AIMC’s sales by 1.8% on a year-over-year basis in the first quarter of 2022. The performance of AIMC’s overseas business might be depressed by a stronger U.S. dollar in the quarters ahead.
Southbound Estimate Trend: In the past 60 days, the Zacks Consensus Estimate for AIMC’s 2022 earnings has declined from $3.63 to $3.33 on two downward estimate revisions against none upward. Over the same time frame, the consensus estimate for 2023 earnings has decreased from $4.18 to $3.80 on two southward estimate revisions against none in the opposite direction.
Zacks Rank & Stocks to Consider
Some better-ranked companies from the industrial products sector are discussed below.
Applied Industrial Technologies, Inc. AIT presently sports a Zacks Rank #1. AIT delivered a trailing four-quarter earnings surprise of 25.4%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
AIT’s earnings estimates have increased 5.9% for fiscal 2022 (ending June 2022) in the past 60 days. Its shares have rallied 2.2% in the past three months.
Roper Technologies, Inc. ROP presently has a Zacks Rank #2 (Buy). Its earnings surprise in the last four quarters was 2%, on average.
In the past 60 days, ROP’s earnings estimates have increased 1.1% for 2022. The stock has declined 6% in the past three months.
Ferguson plc FERG is presently Zacks #2 Ranked. FERG’s earnings surprise in the last four quarters was 14.2%, on average.
In the past 60 days, the stock’s earnings estimates have increased 1% for fiscal 2022 (ending July 2022). The same has declined 25.5% in the past three months.
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Applied Industrial Technologies, Inc. (AIT) : Free Stock Analysis Report
Altra Industrial Motion Corp. (AIMC) : Free Stock Analysis Report
Wolseley PLC (FERG) : Free Stock Analysis Report
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