Here's Why You Should Buy Applied Industrial (AIT) Stock Now

U.S. manufacturing output marked its fifth straight monthly hike this October, as factory activities significantly steamed up in the space. Also, an above-50 ISM Index for the last month indicates growth in American manufacturing. Amid setbacks like supply-side constraints and unfavorable overseas market conditions, manufacturing companies have been buoyed by sturdy domestic economic conditions. Economic policies adopted by the Trump administration, including the December-enacted corporate-tax overhaul and impetus to streamline business regulations, helped boost corporate spending for most of these companies.

In such a scenario, allocating your hard-earned money in selective manufacturing industrial stocks will ensure better returns. Among the numerous potential gainers in the space, adding Applied Industrial Technologies, Inc. (NYSE:AIT) to your portfolio will bear fruit. This stock currently carries a favorable Zacks Rank #2 (Buy).

Reasons for the Solid Run

Solid Top-Line Prospects: Applied Industrial’s revenues improved 6.9% year over year in first-quarter fiscal 2019 (ending September 2018) on an organic basis. The company expects that improving segmental performances and acquisition benefits will drive its top-line results in the quarters ahead. Notably, the company reiterated its revenue growth guidance for fiscal 2019 in the 16-18% range. Per our estimates, Applied Industrial’s year-over-year revenue growth is currently pegged at 17.5% and 3.9% for fiscals 2019 (ending June 2019) and 2020 (ending June 2020). Per the five-year 2023 objectives, Applied Industrial intends to generate revenues of more than $4.5 billion via mid-single-digit organic top-line growth.

Profitability: Applied Industrial pulled off a positive average earnings surprise of 11.67% in the past four quarters. The company believes stellar end-market sales, the FCX Performance buyout benefits (January 2018), lower tax rates and greater operational efficacy will drive its bottom-line results in the quarters ahead. Notably, the company currently anticipates adjusted earnings of $4.65-$4.85 per share for fiscal 2019, higher than the previous view of $4.48-$4.68 per share. Per our estimates, Applied Industrial’s year-over-year earnings growth is pegged at 28.3% and 7.5% for fiscals 2019 and 2020.

Over the past year, Applied Industrial’s shares have appreciated 7.6%, as against the 0.7% decline recorded by its industry.

Acquisition Story: Acquisitions boosted Applied Industrial’s first-quarter fiscal 2019 revenues by nearly 21.5%. The Sentinel Fluid Controls (Mar 6, 2017) and FCX Performance buyouts are worth mentioning, with the former significantly strengthening the company’s Fluid Power business, and the latter reinforcing its Specialty Flow Control business. Notably, Applied Industrial believes the FCX Performance purchase will boost its sales by $550 million and earnings before interest, taxes, depreciation and amortization (EBITDA) by $68 million within 12 months of the deal’s closure.

Liquidity:Applied Industrial is currently trying to improve its cash position, in order to deleverage its balance sheet, buy lucrative businesses and provide higher returns to its shareholders. For fiscal 2019, the company anticipates generating cash within the range of $200-$225 million.

Returns to Shareholders: Applied Industrial intends to boost its shareholders’ remuneration on the back of lucrative dividend payments and share-buyback programs. For instance, the company raised its quarterly cash dividend rate by 3.4% in the fiscal second quarter 2018 (ended December 2017), in order to provide higher returns to its shareowners. In fiscal 2018 (ended June 2018), Applied Industrial repurchased 393,300 shares for $22.8 million and had authorization to buyback another 1,056,700 shares as of Jun 30, 2018. The company is currently improving its cash position to drive shareholders’ value.

Other Stocks to Consider

Some other top-ranked stocks in the same space are listed below:

DXP Enterprises, Inc. (NASDAQ:DXPE) sports a Zacks Rank #1 (Strong Buy). The company pulled off a positive average earnings surprise of 112.62% in the past four quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.

Luxfer Holdings PLC (NYSE:LXFR) also carries a Zacks Rank of 1. The company delivered a positive average earnings surprise of 24.27% over the trailing four quarters.

Graco Inc. (NYSE:GGG) holds a Zacks Rank #2. The company generated a positive average earnings surprise of 4.05% during the same time frame.

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