With Increasing Confidence In EnPro Industries, KeyBanc Upgrades

Industrial conglomerate EnPro Industries, Inc. NPO is poised to outperform, according to KeyBanc Capital Markets. 

The Analyst

KeyBanc Capital Markets analyst Jeffrey Hammond upgraded his rating on EnPro Industries from Sector Weight to Overweight with a $105 price target.

The Thesis

A meeting with CFO Milt Childress and COO Marvin Riley left KeyBanc increasingly confident in the persistence of favorable demand trends into 2018, Hammond said in a Thursday note. (See Hammond's track record here.) 

Helped by better top-line growth and traction from an internal restructuring initiative, the company is likely to hit its three-year EBITDA targets in 2018, a year ahead of schedule, Hammond said. 

The analyst expects investor interest in the shares of the company to perk up once it begins reporting consolidated financials, including the impact of GST. Further, the analyst estimates acceleration of free cash flow from $66 million in 2017 to $127 million, as GST free cash flow is included, and capex normalizes.

There is still a valuation gap versus peers, although it could close as consolidated financials are reported and enhanced free cash flow shows through, Hammond said. 

"We are also constructive about the long-term growth prospects for the company's Trident OP Engine, which was commercially introduced this week at the POWER-GEN International trade show." 

The Price Action

EnPro shares are up over 31 percent in the year-to-date period.

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