Altra Industrial Motion Stock: Look for a Rally If Tariff Risk Falls

Altra Industrial Motion stock
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Altra Industrial Motion Betting on Global Economy

If the current trade wars don’t escalate to the point where it will disrupt global economic growth, industrial companies like Altra Industrial Motion Corp (NASDAQ:AIMC) could rally, especially if steel and aluminum tariffs dissipate.

In the case of AIMC stock, it has not been an easy time as the threat of higher tariffs on steel and aluminum drive up the cost of the company’s products.

Altra Industrial Motion stock is just off its 52-week low of $40.45, down 17.5% this year and down 23% from its range high of $53.70.

Altra Industrial Motion is a play on the global economy, manufacturing a broad range of power transmission products used in various mechanical goods.

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Customers include businesses in the fields of aggregate and mining, automotive, general industrial, marine, material handling, oil and gas, power generation, transportation, and turf and garden.

The issue is that high steel and aluminum costs from the recent tariffs will put pressure on the company’s margins.

Since Altra Industrial Motion has sales in over 70 countries, the concern is that the enactment of tariffs around the world will hurt sales and profitability.

On the price chart, AIMC stock is hovering at a base of around $41.00. The stock needs to find some technical support here or risk a breakdown toward the $35.00 level. On the upside, the target is resistance at around $50.00.

Chart courtesy of StockCharts.com

My Bull Case for AIMC Stock

Consistency in revenues is a challenge for Altra Industrial Motion. Revenue declined in 2015 and 2016 prior to increasing by 23.7% to $876.7 million in 2017.

Fiscal Year Revenue (Millions) Growth
2013 $722.2
2014 $819.8 13.5%
2015 $746.7 -8.9%
2016 $708.9 -5.1%
2017 $876.7 23.7%

The company’s revenue growth is estimated to continue at 6.5% to $933.8 million, followed by 3.7% to $968.8 million in 2019. (Source: “Altra Industrial Motion Corp. (AIMC),” Yahoo! Finance, last accessed August 10, 2018.)

While the revenue growth rates are somewhat muted, my view is that Altra Industrial Motion could deliver better numbers if the tariffs go away and economies grow.

In the meantime, Altra Industrial Motion reports positive earnings before interest, taxes, depreciation, and amortization (EBITDA), as well as profits with strong growth following higher revenues in 2017.

Fiscal Year EBITDA (Millions) Growth
2013 $103.1
2014 $109.0 5.7%
2015 $101.6 -6.9%
2016 $96.2 -5.3%
2017 $122.9 27.8%

The earnings-per-share (EPS) trend is positive. For 2018, Altra Industrial Motion is expected to increase adjusted earnings to $2.55 per diluted share versus $2.05 per diluted share in 2017 and come in with $2.75 per diluted share in 2019.

Fiscal Year GAAP Diluted EPS Growth
2013 $1.50
2014 $1.47 -2.0%
2015 $1.36 -7.5%
2016 $0.97 -28.7%
2017 $1.77 82.5%

Free cash flow (FCF) is consistently positive but declined in 2016 and 2017. My contention is that FCF could rise over the next few years as earnings increase.

Fiscal Year Free Cash Flow (Millions)
2013 $61.8
2014 $56.5
2015 $63.9
2016 $57.7
2017 $47.8

Analyst Take

Insiders are buying Altra Industrial Motion stock to the tune of a net 69,050 shares during the past six months. This is a bullish signal.

The stock trades at a reasonable 15.1-times its 2019 EPS and has a price/earnings-to-growth (PEG) ratio of 1.09, which is indicative of some value.

The ability of AIMC stock to hold and rally off the base will largely depend on the tariff situation. A positive environment for global trade renewal would help drive the stock price higher.