- EF Hutton analyst Tim Moore initiated coverage on Alamo Group Inc (NYSE:ALG) with a Buy rating and a price target of $195.
- The analyst recently visited the company's headquarters in Texas to gain a better appreciation of its innovation advantages, stickiness of its customers, international expansion, sustainability efforts, and bolt-on acquisitions business model.
- The analyst says Alamo warrants a higher valuation for evolving into a company predominately focused on industrial equipment and vegetation management.
- Moore added that approximately 60% of its sales come from government-related customers (states, counties, municipalities), which provide a recurring revenue stream.
- The analyst forecasts strong margin expansion to begin with the September quarter and to continue through next year.
- He expects margin expansion, along with organic sales growth and a possible accretive acquisition next year, to trigger a re-rating of the stock.
- Moore is impressed by the company's focus on innovation, fuel efficiency and weight reduction of its products, hybrid electric products development and its sustainability efforts.
- Alamo's recent backlog of $894 million provides strong visibility into 2023 and equates to seven months of forward sales forecasts compared to three months historically, he cited.
- Moore expects the company to resume its bolt-on acquisition strategy to add 3-5% annual sales growth and possibly spend up to $400 million on acquisitions over the next 18 months.
- He also expects the company to spend $10 million on the construction or purchase of manufacturing plants in Europe to increase its penetration of grass and landscaping cutters and sweepers, along with saving on expensive shipping and transportation costs from the U.S. to Europe.
- Price Action: ALG shares are trading lower by 0.22% at $142.04 on the last check Wednesday.
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