Have you been paying attention to shares of Kadant (KAI)? Shares have been on the move with the stock up 12.8% over the past month. The stock hit a new 52-week high of $229.9 in the previous session. Kadant has gained 26% since the start of the year compared to the 7.7% move for the Zacks Industrial Products sector and the 13% return for the Zacks Manufacturing – General Industrial industry.
What’s Driving the Outperformance?
The stock has a great record of positive earnings surprises, as it hasn’t missed our earnings consensus estimate in any of the last four quarters. In its last earnings report on May 2, 2023, Kadant reported EPS of $2.4 versus consensus estimate of $2.13 while it beat the consensus revenue estimate by 3.68%.
For the current fiscal year, Kadant is expected to post earnings of $9.02 per share on $926.89 million in revenues. This represents a -2.38% change in EPS on a 2.45% change in revenues. For the next fiscal year, the company is expected to earn $9.58 per share on $960.62 million in revenues. This represents a year-over-year change of 6.28% and 3.64%, respectively.
Kadant may be at a 52-week high right now, but what might the future hold for the stock? A key aspect of this question is taking a look at valuation metrics in order to determine if the company has run ahead of itself.
On this front, we can look at the Zacks Style Scores, as they provide investors with an additional way to sort through stocks (beyond looking at the Zacks Rank of a security). These styles are represented by grades running from A to F in the categories of Value, Growth, and Momentum, while there is a combined VGM Score as well. Investors should consider the style scores a valuable tool that can help you to pick the most appropriate Zacks Rank stocks based on their individual investment style.
Kadant has a Value Score of C. The stock’s Growth and Momentum Scores are B and C, respectively, giving the company a VGM Score of B.
In terms of its value breakdown, the stock currently trades at 24.8X current fiscal year EPS estimates, which is a premium to the peer industry average of 20.5X. On a trailing cash flow basis, the stock currently trades at 18.2X versus its peer group’s average of 12.3X. Additionally, the stock has a PEG ratio of 3.1. This isn’t enough to put the company in the top echelon of all stocks we cover from a value perspective.
We also need to consider the stock’s Zacks Rank, as this supersedes any trend on the style score front. Fortunately, Kadant currently has a Zacks Rank of #2 (Buy) thanks to rising earnings estimates.
Since we recommend that investors select stocks carrying Zacks Rank of 1 (Strong Buy) or 2 (Buy) and Style Scores of A or B, it looks as if Kadant meets the list of requirements. Thus, it seems as though Kadant shares could have potential in the weeks and months to come.
How Does KAI Stack Up to the Competition?
Shares of KAI have been soaring, and the company still appears to be a decent choice, but what about the rest of the industry? One industry peer that looks good is Ferguson plc (FERG). FERG has a Zacks Rank of # 2 (Buy) and a Value Score of C, a Growth Score of A, and a Momentum Score of C.
Earnings were strong last quarter. Ferguson plc beat our consensus estimate by 0.92%, and for the current fiscal year, FERG is expected to post earnings of $9.31 per share on revenue of $29.39 billion.
Shares of Ferguson plc have gained 1.7% over the past month, and currently trade at a forward P/E of 15.77X and a P/CF of 13.94X.
The Manufacturing – General Industrial industry is in the top 14% of all the industries we have in our universe, so it looks like there are some nice tailwinds for KAI and FERG, even beyond their own solid fundamental situation.
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