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After Ametek's November results, we raised our full-year profit and sales growth projections to match management's higher targets. We moved our call on the stock from Buy to Watch. We have added the cost of borrowing for large deals to the risks we track, after interest expenses rose to nearly forty million dollars over the past three months. We also updated our expectations for cash conversion and profit margins to reflect the impact of the recent Indicor acquisition.
AMETEK reported record quarterly sales of $2.22 billion, which was about 17 percent higher than the same period last year. Adjusted earnings reached $2.21 per share, coming in ahead of the $2.11 that analysts expected. The company also raised its profit forecast for the full year, signaling confidence in its ability to keep growing.
The results show that the company's strategy of buying small, specialized leaders in niche markets is working. It converted 124 percent of its net income into free cash flow, which is the actual cash left over after paying for operations and equipment. This high cash generation is vital because it provides the fuel AMETEK needs to keep acquiring new businesses without taking on too much debt. Operating margins, a measure of how much profit the company keeps from every dollar of sales, rose to nearly 27 percent. This improvement suggests the company still has strong pricing power for its specialized instruments even as it integrates newer acquisitions.
See the full quarter, and how our tracked metrics did
Source: 8-K filing
AMETEK is scheduled to report its third-quarter results on November 3. Analysts expect the company to earn about $2.11 per share. The company has a long track record of meeting or beating these targets, having done so in each of the last eight quarters. For a business that grows by buying smaller, specialized companies, the focus will be on how much of its growth is coming from those new additions versus its existing operations. Investors will also be looking for updates on its backlog of orders and whether it still expects to spend heavily on more acquisitions through the end of the year.
Morgan Stanley raised its price target from $245 to $275 on Friday. This move brings the firm closer to the average analyst target of $277, suggesting they see more room for the stock to rise from its current price of about $251. While this is not a change in the firm's overall rating, it reflects confidence in the company's ability to keep growing through its strategy of buying small, specialized businesses.
Source: Morgan Stanley
Vertical Research set a new price target of $255 for the stock this week. This is lower than the $271 average target from other analysts who follow the company, but it still suggests the stock could rise about 8 percent from where it sits now. For a company like AMETEK that grows by buying up smaller specialized businesses, these targets usually reflect how much analysts think those new acquisitions will add to future earnings.
Source: Vertical Research
Management has cleared its own bar for eight straight quarters, showing they have a firm handle on their costs and can reliably predict their niche markets.
| Expectation | |
|---|---|
| EPS | $2.28 |
| Revenue | $2.43B |