The Timken Company

TKR Details

The Timken Company (NYSE: TKR) is a global industrial player and is engaged in designing a growing portfolio of engineered bearings as well as power transmission products.

Q2FY21 Result Performance (For the Second Quarter Ended 30 June 2021)

• The company has recorded 32.3% YoY growth in sales to $1.06 billion in Q2FY21, driven by strong organic growth across most end-market sectors along with the advantage of currency translation and the acquisition of Aurora Bearing.
• Net income increased to $104.8 million in Q2FY21 from $61.9 million in Q2FY20 supported by the benefits of higher volume as well as favorable manufacturing performance and currency.
• The cash from operations stood at $147 million and free cash flow at $116 million, in Q2FY21
• Increased Q2FY21 quarterly cash dividend by 3% to 30 cents per share

Key Data (Source: Company Reports) 

Acquired Intelligent Machine Solutions

The company, on 20 August 2021, has acquired Intelligent Machine Solutions (iMS) to expand its Rollon® linear motion product range in Industrial Robotics with larger and heavy-duty applications that comprise seventh-axis robotic transfer units (RTUs) and gantry systems.

Outlook

The company expects to achieve earnings per diluted share in the range of $5.00-$5.30 and adjusted earnings per diluted share in the range of $5.15-$5.45 in 2021 on a GAAP basis. Driven by solid customer demand across most sectors, it is planning to sustain the industrial expansion through 2022. The company is hopeful of delivering record revenue and earnings per share in 2021 despite the expected supply chain and other cost pressures in 2021.

Besides, the company is undertaking targeted investments to boost production capacity as well as expand its product range and enhance productivity in the solar energy industry.

Key Risks

The bearing industry is highly competitive that could lead to significant pricing pressure on its bearings products and could hurt its financial results. Further, it is exposed to the risk of foreign currency fluctuations as a majority of its net sales, costs, assets, and liabilities, are denominated in foreign currencies. Any change in prices of raw materials or the supply or cost of raw materials could adversely hurt its financial performance.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Technical Overview:

Chart

Source: REFINITIV, Note: Purple color line reflects Relative Strength Index (14-Period)

Stock Recommendation

The company has delivered 6-month and 9-month returns of ~-16.58% and ~-11.47%, respectively. The stock is trading lower than the average of the 52-week high price of $92.3856 and the 52-week low price of $52.71, which indicates a good opportunity for accumulation.

The stock has been valued using an EV/Sales multiple-based illustrative relative valuation and the target price so arrived reflects a rise of low double-digit (in % terms). A slight premium has been applied to EV/Sales Multiple (NTM) (Peer Average), considering the solid performance in Q2FY21, decent guidance for 2021, and a strong demand environment.

Considering the aforementioned factors, a “Buy” recommendation has been assigned on the stock at the current market price of $67.85 per share, up by 0.55% as of 24^th September 2021.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices