FBR Capital Remains Sidelined on Park-Ohio Holdings (PKOH) Following 3Q
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FBR Capital reiterated a Market Perform rating and $33.00 price target on Park-Ohio Holdings (NASDAQ: PKOH) following the company's 3Q earnings report. For the second consecutive quarter, Park-Ohio put up revenues that were lower than expectations. Sales were reported at $313 million, or –14% year over year. Adjusted EPS were $1.13.
Analyst Christopher Horn commented, "We remain neutral on PKOH shares following the 3Q16 report. Some things are going well for Park-Ohio: their Chinese opportunity continues to appear more attractive, certain automotive business lines are doing well, and the cost profile has improved this year; however, challenges remain. Commercial trucking demand is weak, oil & gas projects seem unreliable given continued weakness in commodities, and Fiat Chrysler's decision to cut its Dodge Dart and Chrysler 200 left a hole in Park-Ohio's revenue stream. Thus far, management has coped well with endmarket choppiness and we could be close to a bottom in some markets. Gross margin in the third quarter (17.4%) was the highest we had seen since 3Q14, and adjusted EBITDA margin in the quarter (9.8%) represents a 200-bps improvement from 1Q16. We do not see significant opportunity to take margins higher from here until demand ramps back up in higher-margin segments, though a few opportunities for cost efficiencies probably remain. Moreover, we do not see significant near-term demand pickup; new business items will likely roll onto the P&L in coming quarters, but macro headwinds persist and, in our view, dilute potential upside. We reiterate our Market Perform rating and $33 price target."
Shares of Park-Ohio Holdings closed at $34.65 yesterday.
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