Why Jefferies Just Upgraded Kennametal

In a report published Monday, analysts at Jefferies upgraded

from Hold to Buy. The price target has been raised from $35 to $45. The analysts believe that the company possesses "significant self-help opportunities," despite the weakness in the end markets and Fx headwinds. The company is in the process of restructurings its portfolio and its operations in preparation of the next upturn. While the outline of the plan has already been shares, further details are expected when the company reports its F3Q earnings. Kennametal appointed a new CEO, Dan Nolan, on December 31, 2014. Nolan indicated that he intends to conduct a strategic review of the company's entire portfolio so that underperforming businesses can be "fixed or sold." The new CEO also intends to liquidate excess working capital, while writing done recent acquisitions and focusing on debt repayment/share repo. "We believe there are very few scenarios where the actions will not ultimately be accretive to earnings," the analysts said, while adding, "With order rates continuing to decline we believe that another 2-3 ppt. cut to current guidance (FY revenues down 4-5%) is likely. However, given recent industrial conditions (and earnings) this should be largely expected." Jefferies expects the possibility of the passage of the Highway Bill and possible reinstatement of R&D tax credits to benefit the company going forward. The analysts also expect Kennametal to be able to achieve a recovery, given that its inventory rationalization plan has been completed.