The Timken Company

TKR Details

The Timken Company (NYSE: TKR) is a top global industrial player. The company possesses the growing portfolio of engineered bearings as well as power transmission brands.

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

• Strong organic growth across most end-market sectors along with the advantage of currency translation and the acquisition of Aurora Bearing has resulted in 3% YoY growth in sales to $1.06 billion in Q2FY21.
• The company posted net income amounting to $104.8 Mn or $1.36 per diluted share in Q2 FY 2021 as compared to the net income of $61.9 Mn or $0.82 per diluted share in the same period a year ago.
• The net cash from operations stood at $147.1 million. It has generated a free cash flow of $116 million.

Key Data (Source: Company Reports)

Acquired Intelligent Machine Solutions

The company, on 20 August 2021, stated that it has acquired Intelligent Machine Solutions (iMS) that deals in manufacturing industrial robotics and automation solutions. Notably, the addition of iMS expands as well as complements the company’s Rollon® linear motion product range with larger as well as heavy-duty applications, like seventh-axis robotic transfer units and gantry systems.

Outlook

The company expects to achieve 2021 GAAP earnings per diluted share of $5.00 to $5.30 and adjusted earnings per diluted share of $5.15 to $5.45. It has also guided 2021 revenue growth of around 19% at the midpoint in total compared to 2020.  

The company is hopeful of delivering record revenue and earnings per share in 2021 despite of the fact that the expected supply chain and other cost pressures could persist through the balance of the year.

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 significant portion of its net sales, costs, assets and liabilities, are denominated in currencies other than the USD.

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

Technical Overview:

Chart:

Source: REFINITIV

Note: Purple Color Line Reflects RSI (14-Period)

Stock Recommendation

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 better ROE in Q2 FY 2021 on the YoY basis as well as decent outlook.

For the purposes of relative valuation, peers like Federal Signal Corp (FSS.N), Gorman-Rupp Co (GRC.N), among others have been considered.

Considering the aforementioned factors, a “Buy” recommendation has been assigned on the stock at the closing market price of $67.120 per share, down by 0.8% on 6^th October 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.

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