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Here's Why You Should Hold Timken (TKR) Stock in Your Portfolio

The Timken Company TKR is benefiting from solid demand and price realization despite headwinds like supply-chain constraints and inflation. Strategic acquisitions to broaden its portfolio and capabilities across diverse markets, with a focus on bearings, adjacent power transmission products and related services, have also been driving growth.

The company’s efforts to grow its wind and solar businesses will be key catalysts, considering the growing demand for renewable energy.

Timken currently has a Zacks Rank #3 (Hold).

Let’s delve deeper and analyze the factors that make this stock worth holding at present.

Solid Q1 Results: Timken’s total revenues in the first quarter of 2023 were a record $1,262.8 million. It marked a 12.3% improvement from the year-ago quarter aided by strong organic growth in both segments, as well as the favorable impact of acquisitions. The company has been reporting double-digit organic growth for eight consecutive quarters.  TKR reported record adjusted earnings per share of $2.09 in the quarter which marked 21.5% growth year over year.

Upbeat FY23 Guidance: Timken expects 2023’s total revenues to be up 9.5% at the midpoint from the 2022 reported levels. Adjusted earnings per share (EPS) is projected to be between $7.00 and $7.50 in 2023. The midpoint of the guided range indicates year-over-year growth of 20% from the EPS of $6.02 in 2022. This reflects the favorable impact of price/mix and higher sales volume as well as lower material and logistics costs.

Positive Earnings Surprise History: TKR has an average trailing four-quarter earnings surprise of 15.7%.

Healthy Growth Projections: The Zacks Consensus Estimate for Timken’s fiscal 2023 earnings is currently pegged at $7.21 per share, indicating a 19.8% year-over-year increase. The same for 2024 indicates year-over-year growth of 4.8%. Earnings estimates for 2023 and 2024 have moved north by 5% and 3%, respectively, in the past two months.

Solid Demand Bodes Well

Underlying customer demand and end-market momentum remain strong across most sectors. Timken continues to witness new business wins in new markets and regions. The company expects strong performance in renewables, marine and automation in addition to its traditional markets, such as heavy industries and rail to aid its 2023 results.

Demand for the company’s products will remain strong in the years to come. Its diversity in terms of end market, customer and geography, product innovation, and engineering expertise provides it with a competitive edge. Timken has been active in the wind market for more than 10 years. In a bid to diversify its portfolio and tap the attractive solar industry, the company acquired Cone Drive in September 2018.

Over the past few years, the company has been focused on building its renewable energy portfolio through innovation and acquisitions. Renewable energy is currently Timken’s largest individual end-market sector generating 12% of sales, compared to only 5% in 2018. The global demand for renewable energy is expected to witness a CAGR of around 8% over the next 10 years. The share of electricity generation from renewable is expected to more than double by 2030.

Thus, the company is focused on targeted investments in this sector to capitalize on this trend and make it a bigger part of its portfolio in the future.

Strategic Acquisitions to Boost Portfolio

Timken continues to pursue strategic acquisitions to broaden its portfolio and capabilities across diverse markets, with a focus on bearings, adjacent power transmission products and related services. In 2022, Timken completed the acquisition of Spinea, a technology leader and manufacturer of highly engineered cycloidal reduction gears and actuators.

Timken also acquired EnPro Industries' NPO surface-engineering solutions business, GGB Bearing Technology, for $305 million in cash. GGB boasts a portfolio of metal-polymer bearings, serving a wide range of industries.

Timken acquired the assets of American Roller Bearing in January 2023, which will augment the company’s market position in engineered bearings. It also completed the acquisition of Nadella Group in April 2023, which will expand its linear motion portfolio in attractive market sectors.

Solid Balance Sheet to Aid Growth

Timken is taking actions to enhance liquidity, reduce costs and generate a strong cash flow. The company’s total debt-to-capital ratio was 0.45 as of Mar 31, 2023, and the times interest earned ratio was 7.6. Timken expects free cash flow in 2023 to be around 100% of net income aided by higher earnings and improved working capital.

Near-Term Concerns

Timken’s margins have been impacted by higher operating costs. Also, labor shortages and supply-chain constraints are expected to persist and may impair the company’s ability to capture the full opportunity that comes with a strong demand environment.

Price Performance

In the past year, shares of Timken have gained 40.2% compared with the industry’s 18.8% growth.


Zacks Investment Research
Zacks Investment Research

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Stocks to Consider

Some better-ranked stocks from the Industrial Products sector are Hubbell Incorporated HUBB and Pentair plc PNR. HUBB sports a Zacks Rank #1 (Strong Buy) at present and PNR carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Hubbell has an average trailing four-quarter earnings surprise of 21%. The Zacks Consensus Estimate for HUBB’s fiscal 2023 earnings is pegged at $13.81 per share. The consensus estimate for 2023 earnings has moved 22.5% north in the past 60 days. Its shares have gained 45.4% in the last year.

The Zacks Consensus Estimate for Pentair’s 2023 EPS is pegged at $3.66, up 3% in the past 60 days. It has a trailing four-quarter average earnings surprise of 7.2%. PNR gained 14.9% in the last year.

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Timken Company (The) (TKR) : Free Stock Analysis Report

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Hubbell Inc (HUBB) : Free Stock Analysis Report

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