On Tuesday, KeyBanc analyst Ken Newman revised the stock price target for Applied Industrial Technologies (NYSE:AIT), increasing it to $325.00 from the previous $275.00. The firm maintains an Overweight rating on the stock.
The adjustment follows AIT's announcement of its Hydradyne acquisition. KeyBanc's analysis suggests that AIT has significant balance sheet capacity to engage in shareholder-friendly activities such as mergers and acquisitions (M&A) and share repurchases.
According to the analyst, AIT is likely to continue its strategy of bolt-on M&A, particularly in its Engineered Solutions segment, which Hydradyne is a part of. The focus is expected to remain on Discrete Automation end markets. This approach is anticipated to lead to a stronger product mix over the coming years, with long-term EBITDA margins potentially reaching the mid- to high teens, compared to the current target of around 13% or more.
KeyBanc also points out that AIT's potential earnings power could exceed $13 per share by 2027, driven by additional M&A and share repurchase activities.
The stock has experienced significant re-rating over the past 18 months, and the firm believes that there is room for modest improvement. This outlook is based on the expectation that end markets will stabilize and show positive inflection, which is projected to occur in the second half of fiscal year 2025.
The report highlights AIT's consistent track record of solid execution and identifies several factors that could contribute to upside potential. These factors include strategic capital allocation and the potential for a cyclical inflection point in the market. KeyBanc concludes that these elements support their favorable view of AIT as a top-quality short-cycle distributor within their coverage area.
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