Altra Industrial Motion’s (AIMC) Valuation Is Appealing, Says Analyst

The macro challenges laid down by the coronavirus have been virtually unprecedented. Motion control and power transmission company Altra Industrial Motion (AIMC) has not been immune to COVID-19’s impact, either.

Later this month, Altra will report Q2 earnings and ahead of the quarterly statement, Oppenheimer analyst Brian Blair has been assessing the company’s trajectory. Although the analyst unsurprisingly points out “2Q20 was challenging,” Blair anticipates “moderate sequential demand improvement through 2H with potential for meaningful top-line inflection in 2021.”

Blair expects AIMC to post a 20% year-over-year sales decline in 2Q, although the rest of the year should improve in “fits and starts.” Driving the bull case is the expected ramping up of factory automation, medical, and defense spending, which should mitigate against “continued weakness/ volatility across other end markets.”

Looking further ahead, Blair is banking on a healthier 2021. Coming after what the analyst maintains has been “an abnormally long period of industrial compression,” Altra is well set up to benefit from “accelerated investment in automation and medical technologies.”

Further driving optimism is Altra’s 2018 acquisition of 4 companies from Fortive’s Automation & Specialty (A&S) platform. The benefits of the merger should soon lead to a “notably cleaner balance sheet” and will put Altra on a path to being “significantly more profitable.”

Summing up, Blair said, “Combined with ABS-guided restructuring and continuous improvement, we expect solid 2020 FCF generation (mitigating near-term AIMC downside), a healthy 2021 operating rebound (projected EBITDA and EPS growth of +14% and +27%, respectively), and a realistic path back to 2019 profitability or higher by 2022-23 (accompanied by steady balance sheet improvement). In our view, AIMC’s valuation continues to anchor on immediate risks (cyclicality, 3.8x net leverage) while largely overlooking Altra’s enhanced portfolio quality and compelling through-the-cycle operating potential.”

Accordingly, Blair reiterated an Outperform on AIMC, along with a $36 price target. Investors could be pocketing a 18% gain, should Blair’s thesis play out over the coming months. (To watch Blair’s track record, click here)

Turning now to the rest of the Street, where based on 2 Buys and 2 Holds, AIMC has a Moderate Buy consensus rating. Yet, these analysts expect shares to drop by ~3%, should the $29.5 average price target be met over the following months. (See AIMC price targets and analyst ratings on TipRanks)

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