Kennametal (KMT) has strong outlook and bears risk

Kennametal Inc. KMT stands to gain from its presence in various end markets, which allows it to neutralize the risks associated with a single market. Some of KMT’s major end markets include automotive, machine tools, agricultural machinery, and aerospace, among others. In the coming quarters, the strength of KMT’s end markets, including energy, earthmoving, aerospace and general engineering, should drive its performance.

KMT’s innovation capabilities, operational excellence and strong product offerings helped it for some time to increase profitability and maintain healthy margin performance. For example, in the third quarter of fiscal 2022 (ended March 31, 2022), KMT’s gross profit increased 9.6% year-over-year, while margin increased 110 basis points. basis (bp) thanks to strong operating leverage.

Kennametal is focused on rewarding its shareholders through the payment of dividends and stock buybacks. In the first nine months of fiscal 2022, KMT used $50.1 million to pay dividends to its shareholders and repurchased shares worth $50.5 million. The board approved a $200 million share buyback in August 2021, valid for three years and funded by KMT’s operating cash flow.

However, the challenges of escalating costs and expenses are problematic. In the first nine months of fiscal 2022, KMT’s cost of sales increased 5.8% year over year and operating expenses increased 5.7%. In the third quarter of fiscal 2022, operating income suffered from headwinds of $13 million due to high raw material costs. Cost inflation is expected to continue to impact its margins and profitability in fiscal 2022 (ending June 30, 2022).

Kennametal’s global presence exposes it to various environmental laws and regulations in the countries where it operates. In addition, the entity remains vulnerable to foreign exchange problems. Unfavorable foreign exchange rates negatively impacted sales by 4% year over year in the third fiscal quarter. In the coming quarters, KMT’s overseas business could be depressed by a stronger US dollar.

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Over the past three months, this currently ranked No. 3 Zacks (Hold) stock has fallen 5% from the Of the industry down 13.7%.

Zacks Ranking and Stocks to Consider

Some top-ranked companies in the industrial products sector are discussed below:

Applied Industrial Technologies, Inc. AIT currently sports a No. 1 Zacks rank. AIT has delivered a four-quarter earnings surprise of 25.4% on average. You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AIT’s earnings estimates have risen 5.9% for fiscal year 2022 (ending June 2022) over the past 60 days. Its shares are up 5.8% over the past three months.

Roper Technologies, Inc. ROP currently has a Zacks Rank #2 (Buy). Its earnings surprise over the past four quarters averaged 2%.

Over the past 60 days, ROP earnings estimates have risen 1.2% for 2022. The stock has fallen 3% over the past three months.

IDEX Corporation IEX is currently ranked #2 from Zacks. IEX’s earnings surprise over the past four quarters averaged 2.8%.

Over the past 60 days, IEX earnings estimates have risen 3.4% for 2022. The stock has gained 6.4% over the past three months.

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It’s a little-known chemical company that’s up 65% year-on-year, but still very cheap. With relentless demand, rising earnings estimates for 2022 and $1.5 billion for stock buybacks, retail investors could jump in at any moment.

This company could rival or surpass other recent Zacks stocks which are expected to double, such as Boston Beer Company which jumped +143.0% in just over 9 months and NVIDIA which jumped +175.9% in one. year.

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