Astec Industries: Overlooked

Tucked away in the blue hills of Tennessee, Astec Industries (ASTE:  Nasdaq) is overlooked by investors.  Astec supports the heavy construction industry with materials, components and equipment.  The company is included in our Mothers of Invention Index of companies bringing efficiency to resource utilization.  Top among in the company’s product line is equipment for wood pellet plants. 

Among Astec’s most recent customers is Highland Pellets.  Highland is building a $130 million wood pellet facility near Pine Bluff, Arkansas. Highland intends to use unused forest dregs, logging leftovers, deadwood, thinned trees, and imperfect commercial trees.  The pellets will be sold to utilities converting coal power plants to biomass.

There are more reasons than just environmental benefits to consider Astec.  The company earned $35.4 million in net income or $1.54 per share on $973.1 million in total sales in the twelve months ending March 2016.  Cash flow from operations totaled $69.3 million in the same period.  

Astec needs strong cash flows.  At least its debt-to-equity ratio of 174% suggests the company is highly levered and needs cash to keep afloat.  However, total debt is $10.9 million and after considering the company’s cash hoard of $64.1 million, net debt is zero.

The company is not dependent upon the biomass fuel business.  Astec also produces equipment for use in geothermal power plants and water clean-up plants.  Although not as glamorous as power generation or water purification, Astec also targets the road builders, mining companies and oil and gas producers with its materials processing and heating equipment.

There is a building group of analysts following ASTE.  The consensus estimate for the current year reveals their optimism for sales and earnings since the Highland Pellets order came in.  The consensus estimate is $2.25 in earnings per share on $1.1 billion in total sales.  In the March 2016 quarter the Company finally beat the consensus estimate after missing each of the hurdles for each of the three previous quarters.   If the company can continue to meet expectations for strong earnings growth in the year, the stock is likely to catch the attention of more investors. 

ASTE is currently trading at 20.6 times 2017 projected earnings and offers a dividend yield of 0.7%.  The stock cannot be characterized as a deep value, but acceptable with the promise of double digit growth.  

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.