Ametek (AME) Up 4.4% Since Last Earnings Report: Can It Continue?

Zacks Equity Research
·4-min read

A month has gone by since the last earnings report for Ametek (AME). Shares have added about 4.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Ametek due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

AMETEK Beats Q4 Earnings Estimates

AMETEK has reported fourth-quarter 2020 adjusted earnings of $1.08 per share, which beat the Zacks Consensus Estimate by 4.8%.

Further, the bottom line remained flat on a year-over-year basis and improved 6.9% sequentially.

Net sales of $1.19 billion missed the Zacks Consensus Estimate of $1.2 billion. Notably, the top line rose 6.4% from the previous quarter but declined 8% year over year.

Disruptions caused by the COVID-19 pandemic led to a decline in the company’s top line. Moreover, sluggishness in the Electronic Instruments Group (“EIG”) and Electromechanical Group(“EMG”) segments remained a concern.

Nevertheless, the company delivered a strong operational performance in the fourth quarter.

AMETEK’s proper execution of the four core growth strategies — operational excellence, global market expansion, investments in product development and acquisitions —are expected to continue aiding financial growth in the near term and the long haul. Moreover, the AMETEK Growth Model is likely to continue driving the company’s business performance.

Segments in Detail

EIG (68.3% of total sales): AMETEK generated sales of $819.4 million from this segment, reflecting a decline of 7% from the year-ago quarter. This can primarily be attributed to the coronavirus pandemic. Nevertheless, the segment delivered solid operating performance during the reported quarter.

EMG (31.7% of sales): The segment generated $379.5 million of sales in the fourth quarter, which declined 11% on a year-over-year basis. The coronavirus-induced headwinds were major negatives. Further, the Reading Alloys divestiture impacted the top line negatively. Nevertheless, the segment delivered strong operational results.

Operating Details

For the fourth quarter, operating expenses were $900.8million, down 10.6% year over year. Further, the figure contracted 210 basis points (bps) from the year-ago quarter as a percentage of net sales to 75.1%.

Consequently, operating margin was 24.9%, which expanded 210 bps from the year-ago reported figure.

Further, operating margin for EIG expanded 270 bps year over year to 28.8% and the same for EMG expanded 110 bps from the year-ago quarter to 21%.

Balance Sheet & Cash Flow

As of Dec 31, 2020, cash and cash equivalents were $1.2 billion, down from $1.3 billion as of Sep 30, 2020.

Further, inventories amounted to $559.2 million at the end of the fourth quarter compared with $584.7 million at the end of the prior quarter.

Long-term debt was $2.28 billion in the reported quarter, down from $2.29 billion in the prior quarter.

The company generated $385.9 million of cash from operation in the fourth quarter compared with $309.7 million in the previous quarter.

Further, AMETEK generated free cash flow of $348.9 million in the reported quarter.

Guidance

For first-quarter 2021, the company expects a sales decline of low to mid-single digits on a year-over-year basis.

AMETEK expects adjusted earnings of 97 cents to $1.02 per share.

For 2021, the company expects a sales increase of mid-single digits on a year-over-year basis.

Adjusted earnings are anticipated to be $4.18-$4.30 per diluted share, suggesting growth of 6-9% from 2020.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

VGM Scores

Currently, Ametek has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Ametek has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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