Wells Fargo Upgrades Kennametal (KMT) to Outperform; Analyst Sees Value

Wells Fargo upgraded Kennametal (NYSE: KMT) from Market Perform to Outperform with a price target of $56-$59 (from $45-$48.) Analyst Andrew Casey believes the stock represents good relative value.

"KMT modestly reduced FY2014 guidance in the FQ3 2014 release. We believe that will be the last decrease for the foreseeable future. Despite a positive reaction to the May 1, 2014 earnings report, KMT is down 6.8% year to date compared to a 1.2% increase in the S&P 500. We view company to be in the early phases of positive earnings growth with end market demand exiting lulls in U.S. Industrial, oil/gas land well drilling, and road construction and EU industrial activity," said Casey.

"Further, we believe KMT is capable of generating approximately 30% earnings growth in FY2015 (i.e., 20% core business earnings growth plus 10% from TMB acquisition benefits). We are raising our FQ4 2014E to $0.96 from $0.93 (vs. consensus FQ4 2014E $0.90), FY2014E to $2.72 from $2.64 (vs. guidance $2.63-2.76), and FY2015E to $3.55 from $3.30 (vs. consensus FY2015E $3.34). We are also introducing our FY2016E $3.95. Our new estimates are generally above consensus, but we do not view them to be aggressive against (1) strong operating leverage to good growth prospects in several end markets (i.e., U.S. and EU industrial, North American oil/gas drilling, U.S. road construction, and Aerospace) and (2) accelerated FY2014 initiatives to drive realization of $0.30-0.40 of incremental TMB synergies by FY2017," he added.

For an analyst ratings summary and ratings history on Kennametal click here. For more ratings news on Kennametal click here.

Shares of Kennametal closed at $48.52 yesterday.

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