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Baird Gets Bullish On Altra Industrial Motion Following Fortive Deal

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Altra Industrial Motion Corp (NASDAQ: AIMC), a manufacturer of motion control and power transmission products, announced Wednesday a deal to buy four operating companies of Fortive Corp (NYSE: FTV)'s Automation and Specialty platform for $3 billion in cash and stock.

The Analyst

Baird analyst Michael Halloran upgraded Altra Industrial Motion from Neutral to Outperform and increased his price target from $50 to $57.

The Thesis

The acquired platform will bring a new offering around precision motion control, drives and software, while also diversifying Altra Industrial Motion away from cyclical commodity markets, Halloran said in a note.

The Fortive portfolio generated sales of $907 million and EBITDA of $220 million in 2017, the analyst said.

The $52 million EBITDA synergies, including improved scale and sourcing benefits, combined value engineering, and cross-references on the sales side, appear reasonable, Baird said. The firm also see significant financial profile accretion, with twice as much as revenues for the combined company and mid-teens EBITDA accretion.

The leverage arising out of the deal is manageable. Baird recommends owning Altra Industrial Motion ahead of greater investor attention on the new company, and materialization of upside to the 2018 guidance.

"We see upside in the $55-60 range over the coming 12-24 months with crisp execution on the integration,'' the firm said.

The Price Action

Altra Industrial Motion shares were up about 12 percent over the past year,.

At time of writing, shares were up 3.56 percent to $46.50.

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