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Analyst: Sun Hydraulics Has 'Best-In-Class' Profitability In Sector

Analyst: Sun Hydraulics Has 'Best-In-Class' Profitability In Sector

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

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.

"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. 

Latest Ratings for SNHY

May 2019BairdDowngradesOutperformNeutral
Apr 2019Stifel NicolausDowngradesBuyHold
Mar 2019KeyBancDowngradesOverweightSector Weight

View More Analyst Ratings for SNHY
View the Latest Analyst Ratings


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Posted-In: hydraulics industrials Jeffrey Hammond KeyBanc Capital MarketsAnalyst Color Price Target Initiation Analyst Ratings Best of Benzinga

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