Applied Industrial's (AIT) Prospects Bright, Risks Linger

On Jun 23, we issued an updated research report on Applied Industrial Technologies, Inc. (NYSE:AIT) .

Existing Scenario

Applied Industrial intends to boost its near-term revenues on the back of favorable foreign currency translation, diligent marketing projects and solid sales volumes. The company’s ongoing acquisitions are also expected to boost its top-line performance in the quarters ahead. For instance, the Sentinel Fluid Controls acquisition (Mar 6, 2017) is anticipated to fortify Applied Industrial’s Fluid Power business, moving ahead.

In addition, the company intends to widen its margins over the long term, supported by disciplined cost management and greater operational efficacy, across all business domains.

It raised its fiscal 2017 earnings guidance to the $2.74–$2.84 per share range, as against the previous range of $2.50–$2.60 per share.

However, we believe that the benefits accrued from the aforementioned positives might be hurt due to certain headwinds. Applied Industrial conducts its business in a highly competitive market. Companies like Altra Industrial Motion Corp. (NASDAQ:AIMC) , Colfax Corporation (NYSE:CFX) and Graco Inc. (NYSE:GGG) are some major players in the industry. Sudden fall in market demand share due to stiff industry rivalry might dent the company’s performance in the near term. At the same time, consolidation of suppliers’ and customers’ industries might thwart its financial performance in the quarters ahead. For instance, alliance between suppliers might curtail the company’s ability to negotiate favorable pricing and other important commercial terms related to inventory purchases.

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