By:
Charlie Maleki, AIM Student at Marquette University
Summary
• Kennametal, Inc. (NYSE:KMT) supplies tooling, engineered components
and materials in the production process through two segments: Industrial and
Infrastructure.
• Prime end-markets
should continue to provide KMT with a strong tailwind for revenue growth into
the future.
• KMT’s restructuring
initiatives should save roughly $10 million pre-tax over the first half of the
2019 fiscal year.
• KMT is currently
undervalued compared to their sector peers, but increase in insider selling
gives a slight reason for caution.
• Since being added to
the AIM fund, KMT has seen a slight dip in value or 3.5%, however, the thesis
remains strong and the stock should begin to move towards their target price of
~50$.
Key
points: Kennametal remains 'in-play'. Since the industrial
market as a whole has begun to slow in regards to growth, KMT has stalled with
it. However, the company still believes that sturdy demand from their prime
end-markets (such as aerospace, automotive, and machine tool) will continue to
drive revenue growth in the upcoming quarters.
Kennametal also began
different restructuring initiatives that were carried out during their 2018
fiscal year. These moves created ~$2 million in pre-tax savings for the first
quarter of 2019. Annualized pre-tax savings should be ~$10 million in the first
half of 2019 alone.
Kennametal is currently
undervalued based on many different valuation metrics when compared to their
industry competitors. KMT currently has a Price/Earnings of 14.6 versus the
sector average of 20.9. They also currently have a Price/Sales of 1.24 versus
the sector average of 1.7.
One red flag for
Kennametal is the recent increase in insiders selling the stock. Specifically,
VP and Chief of Human Resources & Corporate Relations Officer Judith
Bacchus has ditched $214k worth of shares over the last three months. This is
not a perfect teller of a future negative trend for KMT, but it provides
investors with a reason to be slightly cautious moving forward.
What
has the stock done lately?
Since KMT was added to
the AIM fund on May 2, 2018, the stock has dropped 3.5% from $37.55 to $36.23.
Most of the downside KMT has experienced over the last year has been avoided.
Their strong operational success coupled with potential positive catalysts
should breathe life into KMT pushing it to reach its projected target price
near $50.
Past
Year Performance: AIG has decreased ~25% in value over the
past year, making KMT a great bargain for any potential investors as the solid
fundamental situation of the company has not changed. The thesis presented
within the AIM class of 2019 is still very much in play providing a cheap
opportunity for growth.
Source: Google Finance
My
Takeaway
Kennametal remains a
strong fundamental firm that should play a large roll in continuing to grow the
industrials sector of the AIM Equity Fund. While they have experienced a slight
loss in value recently, they have still proven to be more resilient to down
markets than the majority of their competitors. KMT’s management continues to
believe they have a plethora of opportunities for growth and will continue to
introduce new initiatives to take advantage of these opportunities moving into
the future.
