Value Stock: The Timken Company (TKR)

The Timken Company (TKR) is seeing strong global demand as 2010 sales are expected to rise as much as 25% over 2009. TKR has attractive valuations, with a forward P/E of just 13.2.

Timken manufactures antifriction bearings and power transmission products and services as well as alloy steel and components.

Its friction management and power transmission services a variety of markets including aerospace, automotive, consumer, energy, heavy industry, power generation and rail.

Headquartered in Ohio, the company now has operations in 26 countries.

Timken Beat By 67% in the Second Quarter

On July 29, Timken reported its second quarter results which crushed the Zacks Consensus by 34 cents. Earnings per share were 85 cents compared to the consensus of 51 cents. The company lost 7 cents in the year ago quarter.

Sales rose 37% to $1 billion over the second quarter of 2009. The quarter was boosted by demand recovering and improvements in the company’s cost structure and pricing.

The Steel Group saw the largest increase in sales on strong demand, which rose 151% to $338.1 million from $134.8 million in the year ago period.

Its largest segment, Bearings and Power Transmission Group, saw sales up 14% to $694.7 million from $608.4 million.

The Aerospace and Defense Group was the only segment that saw declining sales, which fell 24% to $82.7 million, as demand fell from the commercial and general aviation market. Demand from the defense industry stayed flat.

Raised 2010 Guidance

Timken still sees strong global demand. Sales are expected to increase 25% to 30% over 2009. The Steel Group should continue to outperform due to increased demand, as sales are expected to rise 70% to 80% from 2009. The Aerospace and Defense segment is forecast to remain weak.

The increase in the rest of its business segments was enough for Timken to raise its full year earnings per share guidance to the range of $2.40 to $2.60 from $1.60 to $1.80 per share.

Analysts Raise Estimates

Given the big guidance increase, not surprisingly, the analysts moved to raise estimates accordingly.

The 2010 Zacks Consensus jumped 69 cents to $2.64 per share in the last month as all 9 estimates moved higher.

More of the same is expected in 2011, as all 9 estimates have risen over the last 30 days as well, pushing the Zacks Consensus up to $3.09 from $2.44. This is earnings growth of 17%.

Is Timken a Value Stock?

Timken has the envious combination of both growth and value. It has a low P/E but earnings are growing. The company has a PEG ratio of just 0.4, which is well under the industry’s average of 1.2.

The company also has a price-to-book ratio of 2.0, which is well within the value parameters of under 3.0.

Timken also rewards shareholders by paying a dividend which it has paid out for 353 consecutive quarters. The current yield is 1.5%.

Timken is a Zacks #1 Rank (strong buy) stock.

TIMKEN CO (TKR): Free Stock Analysis Report

About Tracey Ryniec 60 Articles

Affiliation: Zacks Investment Research

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service. You can follow her at twitter.com/traceyryniec.

Visit: Zacks Investment Research

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