Ametek (AME) was an analyst favorite in 2019 as the company went from sales of $2 billion a decade ago to $5 billion. Its concentration in specialized markets and M&A strategy contributed to the company’s expansion. However, in its hi-tech instruments division, the corporation is currently facing considerable pressure. Ametek shares have fallen more than 25 percent since the pandemic began last year.
Ametek shares dropped from $80 to $60 a few weeks later, but the company did little to put it in a tough spot. With net debt reduced to $1.2 billion, a great deal of financial firepower was created to drive mergers and acquisitions. Based on the figures presented in 2020, the company is evaluated more than seven times its turnover. Of course, the final impact will only be visible at the end of this year, but mostly in 2022.
For the next year, analysts forecast a $5-per-share actual earnings plan based on organic growth, the contribution of these deals, and deleveraging. In addition, the company wants to return to significant mergers and acquisitions to ease pandemic challenges.
Ametek (AME) has often proven that it can identify M&A targets that add value and then expand on those margin improvements. The corporation is a cash-generating powerhouse that rarely trades as low-cost standard valuations. Ametek is expected to anticipate higher demand in 2021, but this is not a short-term recovery from Illinois Tool Works (ITW) or Parker Hannifin (PH). Ametek has a systematic M&A strategy focusing on oligopolistic markets with credible barriers to competitive entry (or at least speed bumping). Since 2012, he has spent over $4 billion on over 30 deals and is very good at improving post-business profit. Ametek’s recent healthcare acquisitions include nurse call systems that streamline processes while balancing patient needs and staffing levels.
Abaco’s latest $1.35 deal by Ametek is the biggest deal in the company’s history and shows a penchant for thinking bigger. Analysts believe Ametek will generate long-term growth in single numbers on its own, with M&A likely expanding by an additional 100 to 200 basis points. As a result, investors looking for significant returns on money for shareholders here may not be satisfied. But future returns (discounting cash flow) today are no worse than the average for the high-quality industrial subset.
Ametek: Solid no-frills execution
Ametek (NYSE: AME) is a high-quality cyclic with a solid history. It has above-average industry returns and strong free cash flow generation led by qualified and disciplined management. The company is highly suitable for capital deployment and has completed more than 80 transactions. Over the past ten years, Ametek’s return on equity (ROE) has consistently been between 15% and 20%. In addition, Ametek’s free cash flow has continuously improved over the past decade.
The company has historically promoted merger and acquisition debt financing, and its CAPEX needs are not sizable compared to heavy industry companies. Ametek’s exposure to aerospace trading (now around 10% of total sales) will lead to a restricted medium-term return on normalized business, which could hurt overall performance.
AMETEK, Inc. (AME): Industry overview and history
AME, AMETEK, Inc. (AME) is a leading global manufacturer of electronic instruments and electromechanical devices and a significant producer of detection products such as pressure measurement devices and sensors.
Aerospace and defense are two of the most significant contributors to the world’s leading high-tech companies. With continued growth in military spending, demand for new products has also increased, as new manufacturing lines need. The average age of the world’s fleet is just 18 years old, and the defense industry has invested approximately $1 trillion in the last ten years to keep up with demand. The defense industry has relied on the aerospace and defense industry heavily over the past 70 years. Industry players: Global giants such as Lockheed Martin Corporation, BAE Systems Plc, and Northrop Grumman Corp. (NYSE: NOC) offer high-tech products used in almost every part of the country’s military operations. Likewise, Emerson Electric Co.
As a result of the good quarterly results that AME released earlier this year, the company increased its forecast for the year. AME expects to achieve sales of approximately $4 billion, earnings per share of $2.40, and free cash flow above $500 million. This compares to the previous forecast of roughly $4.17 billion, $2.20, and $480 million. Detection products, including handheld measurement instruments, flow meters, and chemical sensors, represent a large percentage of AME’s business. Over the past year, AME’s share price has been relatively stable, after peaking at nearly $100 per share in August 2020. Since then, AME has been in a holding pattern and has not traded above its 52-week low of $60.92.
AME has underperformed the S&P500 for ten consecutive years. However, it is also interesting to note the performance of AME shares relative to two investment-grade diversified conglomerates such as 3M and Danaher (DHR). Grew at a significantly higher rate analysts suggest that, over the long term, the company’s stock price would be positively affected by the company’s historic and future growth rate, as well as the company’s operational achievements.