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The recent pullback in the shares of industrial valve manufacturer Sun Hydraulics Corporation (NASDAQ:SNHY) offers a compelling entry point, according to KeyBanc Capital Markets.
The Analyst
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KeyBanc Capital Markets analyst Jeffrey Hammond initiated coverage of Sun Hydraulics with an Overweight rating and $67 price target.
The Thesis
Sun Hydraulics "has consistently had best-in-class profitability within the hydraulics industry," Hammond said in a Monday note.
The company has superior operating margins in its hydraulics business, and Hammond attributes the higher-margin structure to unique cartridge valve cavities, a higher aftermarket mix and "a unique focus and size that allows for greater speed and agility within its niche markets."
The Enovation deal the company completed in December 2016 is an excellent fit from both a cross-selling and cultural standpoint, Hammond said.
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"While it is no small task for a company with strong returns to find businesses that fit well and do not dilute the business, SNHY appears to have found one in its largest acquisition ever," the analyst said.
Sun Hydraulics benefits from a global reach, with a deep local presence in its niche hydraulics and electronics market, Hammond said.
A $275-million-plus equity offering and free cash flow generation mean Sun Hydraulics is on track to reach its $350-million revenue target without pressuring the balance sheet, he said.
Price Action
Sun Hydraulics shares were up 78 percent over a one-year period until Jan. 29, the session before the company announced the common stock offering. The stock has pulled back about 19 percent since then.
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Photo courtesy of Sun Hydraulics.
Crypto Whales Are Loading Up — Are You?
New research shows the biggest crypto buyers are back. And this time? They could hold for the possibility that Bitcoin will surpass $100,000 in 2024. You don’t want to miss the next massive crypto bull run like we saw in 2020 and 2021. To know exactly what’s going on and what to buy… Get Access To Benzinga’s Best Crypto Research and Investments For Only $1.