NEW YORK (
shares have gained around 12% so far in 2010, and Wall Street is generally bullish about where the stock goes from here.
Of the 14 analysts covering the Milwaukee-based maker of industrial products, such as hyrdaulic and mechanical tools, nine are at "buy" or "strong buy," according to
data. The median 12-month price target on the shares is $24, which implies upside of around 15% from Monday's close at $20.83.
The company appears to be doing its part. The stock has rallied 18% since scraping a near-term low of $17.64 on July 6. In mid-June, Actuant reported fiscal third-quarter results that topped Wall Street expectations, lifted its forecast for the remainder of 2010, and gave an outlook for earnings of $1.20 to $1.35 a share for fiscal 2011, a view that represents growth of 40% at the top end of the range.
FBR analyst Ajay Kejriwal walked away from a recent meeting with CFO Andy Lampereur with confidence in his "outperform" rating, which is the equivalent of a strong buy. Kejriwal says the potential risks facing Actuant have started to subside and even its exposure to deepwater drilling looks as if it will end up turning into a positive for the company.
Kejriwal estimates Actuant only has about $3 to $5 million tied up in the Gulf of Mexico and thinks the
disaster could turn into an event that ultimately gives demand a lift.
Ann Duignan at JP Morgan noted that the recent BP events have caused many of Actuant's customers to put maintenance plans on hold, but feels increased regulation will prompt many of these customers to resume maintenance projects and possibly increase the scope of those projects.
Actuant CEO Bob Arzbaecher: Profits from BP Rules
In addition, expected declines in business from Europe don't seem to have materialized for Actuant. FBR's Kejriwal says the trend is in line with what other industrial companies like
Illinois Tool Works
Kejriwal continues to recommend purchase of the shares, citing "the company's solid execution through the downturn, continued recovery in its beaten down businesses in auto, RV
recreational vehicle and DIY
do-it-yourself electrical and prospects for a bottoming in its mid-to-late cycle energy markets over the next couple of quarters."
recently spoke to Acutant CEO Bob Arzbaecher about the company's outlook and how it's being impacted by the issues confronting the deepwater drilling industry.
TheStreet: Actuant recently raised its guidance -- so what made you feel so confident?
It's really a recovering economy for us. We're seeing that in North America and in Europe and in Asia. We're up 16% core growth for the quarter and felt very comfortable with that - raising the guidance for that.
TheStreet: You do have a little bit of exposure to BP, not a whole lot, but you see that increased regulation could actually benefit your company. How so?
Arzbaecher: We do a product that is called joint integrity which is the bolt and tensioning and torquing around a joint. That's a very regulated industry already. Where you're testing those bolts on a routine. There'll be more inspections. There'll be more regulation. There'll be more legislation. We view all that will be positive. You'll see more maintenance and repair. Additional work done by the asset owners to make sure they're in compliance.
TheStreet: Earlier this year there was so much fear about Europe, but Actuant hasn't really seen much weakness in Europe.
Arzbaecher: Fast forwarding to today, it's within our guidance expectations. We read a lot - We worry a lot, but we just have not seen anything in the order pattern of any of our businesses. We're very diverse there. We do some DIY (Do-It-Yourself). We do some truck - some auto - and we do some energy. So, it's probably a pretty good proxy for what people are seeing.
TheStreet: You are in some areas that have been weak -- DIY, some electrical, autos, RV's. Are you seeing any signs of improvement in those areas?
Arzbaecher: Certainly the vehicle side of the business has been stronger. Our business within the DIY tends to follow the same as the
. those guys are seeing what we're seeing in the electrical aisle.
TheStreet: Do you see more acquisitions in the future?
Arzbaecher: Yes, I think what's made us successful is we've being doing a lot of small acquisitions. So fishing in some smaller ponds rather than bigger ponds. Done four deals this year totaling about $50 million. Flies under the radar screens of a lot of other companies and yet it still fits our business model. I would love to do another four or five deals. Deploy another $50-$100 million, which is about our free cash flow on an annual basis and keep doing that. That's what we've done successfully over the years.
TheStreet: What do you see in the recovery from the recession?
Arzbaecher: I think we are in a recovery. We're not back to the previous peak in most of our end markets but year over year there's no question it's been a recovery. It's been building in strength and really haven't seen any signs of it moderating.
TheStreet: Do you feel you're managing for slow growth?
Arzbaecher: I think we're managing for whatever comes at us and trying to keep a fast response either way. Obviously with 16% core growth it's a real testament to the employees to be able to push that out. We did a lot of downsizing during the recession. If it slows down we'll take plans accordingly and look at it that way. So cautious -- we're not adding a lot of fixed costs. Not adding a lot of brick and mortar. Not adding a lot of employees. Trying to do it with efficiency and more velocity of turns of inventory and sales channels.
TheStreet: What is your biggest challenge and biggest opportunity in the year ahead?
Arzbaecher: The biggest challenge is just trying to predict which way the economy goes. We have the right inventory in the right places -- to deal with that -- that's my biggest challenge. Our biggest opportunity is growth. We have a new initiative going on at the company right now called "Growth and Innovation." It's really to look and be able to serve additional customers, additional geographies, and additional technologies into new markets and that's a new initiative for us. So it's a great opportunity for us to see if we can get a few more basis points of core growth out of the existing platform.
TheStreet: Where is Actuant investing most of its money within the company?
Arzbaecher: Energy and industrial. Those are the two segments that have gotten most of the investment over the last two or three years and that continues into the future. Even though energy is a place where people are nervous, I'm still pretty big energy bull. We have a very diverse energy business. We have things in nuclear, things in wind. Things in power generation and we're focused in putting additional resources in there.
Written by Debra Borchardt in New York.
Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.