Zacks Investment Research downgraded Actuant Corporation (ATU) to a Zacks Rank #5 (Strong Sell) on Nov 15, 2014. Going by the Zacks model, companies holding a Zacks Rank #5 have strong chances of performing worse than the broader market.
Why the Downgrade?
Over the last four trailing quarters, Actuant has witnessed three earnings misses with an average surprise of -4.7%. The company’s fourth-quarter fiscal 2014 results were feeble, primarily due to uneven demand in end markets and unfavorable segment mix. Earnings came in at 47 cents per share, below the Zacks Consensus Estimate of 52 cents and down 32.9% sequentially. Consequently, investor sentiments on the stock have weakened.
Actuant’s Industrial segment suffered due to globally lower integration solutions activity and flat demand for Enerpac’s industrial tool product line. Also, its Engineered Solution segment was adversely impacted by divestment. Additionally, the company’s cost of sales and operating expenses increased 7.3% and 22.6% respectively in the fourth quarter. Rising expenses and costs have negatively affected the profit margin of the company.
Furthermore, Actuant generates a large proportion of its revenue from marketplaces outside U.S. As a result, its business in the foreign economies is often negatively affected by currency, exchange rate, environmental and political problems. Besides, threats of external market rivalry are diminishing the company’s sales and operating margins over time.
For fiscal 2015, Actuant anticipates headwinds of 8 cents and 5 cents per share from higher tax rate and foreign currency translation, respectively. Investors presently remain dubious about Actuant’s performance in the quarters ahead, reflecting the uncertainty through a downward revision in earnings estimates.
Other Stocks to Consider
Actuant currently has a $2.04 billion market capitalization. Some better-ranked stocks in the machinery industry include Middleby Corporation (MIDD), Blount International Inc. (BLT) and The Babcock & Wilcox Company (BWC). While Blount currently sports a Zacks Rank #1 (Strong Buy), both Middleby and Babcock & Wilcox carry a Zacks Rank #2 (Buy).
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