Here's Why You Should Avoid Betting on Kennametal (KMT) Stock
Kennametal Inc. KMT has failed to impress investors with its recent operational performance. The lackluster performance was owing to difficult end-market conditions caused by the coronavirus mayhem and other woes, which are expected to adversely impact its earnings.
The Zacks Rank #4 (Sell) company has a market capitalization of $3.2 billion. In the past month, it has gained 3.6% compared with the industry’s growth of 5.1%.
Let’s delve into the factors that might continue to take a toll on the firm.
Weak End Market & High Costs: Kennametal has been experiencing end-market challenges on account of the coronavirus pandemic. The company has refrained from providing projections for fiscal 2021 (ending June 2021). Also, the company believes that its temporary cost-control actions will lead to year-over-year adverse impact of $50-$55 million in the second half of fiscal 2021. Cost headwinds will likely be $10 million in the fiscal third quarter (ending March 2021) and $40-$45 million in the fiscal fourth quarter. In addition, it expects charges related to the fiscal 2021 restructuring actions to be $90-$100 million, which might affect the company’s free operating cash flow in the second half of fiscal 2021.
High Debt Profile: The company’s high debt profile poses a major concern. Notably, exiting the second-quarter fiscal 2021 (December 2020), Kennametal’s total debts were $628.7 million, higher than $595.3 million a year ago. Its net debt (total debt minus cash and cash equivalents) was $525.5 million compared with $490.1 million in the year-ago quarter. The company’s interest expenses in second-quarter fiscal 2021 reflect an increase of 3.3%.
Forex Woes: Given its presence in international markets, the company is exposed to the unfavorable foreign currency movements and geopolitical issues. Kennametal’s fiscal second-quarter sales in the Americas recorded a decline of 20.8% year over year, while that in the Europe, the Middle East and Africa region and the Asia Pacific fell 8.8% and 0.3%, respectively.
Estimate Trend: In the past 30 days, analysts have increasingly become bearish on the company, as evident from negative earnings estimate revisions. The Zacks Consensus Estimate for its fiscal 2021 earnings has trended down from 85 cents to 73 cents on four downward estimate revisions against one upward. In addition, over the same timeframe, the consensus estimate for fiscal 2022 (ending June 2022) earnings has trended down from $1.63 to $1.50 on five downward estimate revisions against none upward.
Stocks to Consider
Some better-ranked stocks from the Zacks Industrial Products sector are ABB Ltd ABB, AGCO Corporation AGCO and Astec Industries, Inc. ASTE. All the companies currently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
ABB delivered a positive earnings surprise of 54.17%, on average, in the trailing four quarters.
AGCO delivered a positive earnings surprise of 454.97%, on average, in the trailing four quarters.
Astec Industries delivered a positive earnings surprise of 172.72%, on average, in the trailing four quarters.
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