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Timken Has Immediate 40% Upside, Longer-Term 100% Upside Potential

May 02, 2018 11:45 AM ETThe Timken Company (TKR)10 Comments
Quoth the Raven profile picture
Quoth the Raven


  • Timken reported a great quarter early Wednesday morning.
  • The company has raised its guide for next year - the second time in as many months to raise FY guidance - to $3.90.
  • TKR is a rock solid century old dividend payer that deserves a P/E of 15 and short-term share price appreciation of about 40%.
  • TKR 2018 estimates have gone from $3-$3.90 in five months and in the same time shares are lower by 20%, trading with a P/E of about 10 - insanely cheap.

Timken (NYSE:TKR) was out with earnings this morning that punched out the Street's expectations, posting EPS of $1.02 vs. estimates of $0.87 and revenue of $883.1 million, which beat by over $40 million. The company also upped its guidance for the upcoming year - the second time it has raised guidance in as many months - and Timken now expects 2018 GAAP earnings per diluted share of $3.80 to $3.90 and adjusted earnings per diluted share of $3.90 to $4.00.

The stock hardly responding in trading, making it still cheap considering the fact that the company was trading closer to $50 before the recent market volatility and before it raised guidance twice. Since January, the company's 2018 EPS estimates have gone from $3.00 to $3.30, then to $3.60, to now being $3.90-$4.00. In the same time period, the stock is down almost 20%. Timken is now officially a bargain.

Based on the company's new guidance and a P/E of 15 (which is still quite conservative, considering many century old dividend paying blue chips are priced at P/E's of 20 and above in this market), Timken shares could have short term 40% upside and even further upside over the longer term. It's also worth noting that TKR's are fully diluted GAAP numbers, so there's little to no room to be "turning knobs to change EPS," as Ubiquti Network's CEO once put it.

The company stated in its press release that it had a positive Q1 due to organic growth, acquisitions and FX tailwinds:

The increase was driven by strong organic growth across most end-market sectors led by industrial distribution and off-highway, as well as the benefit of acquisitions and currency.

They also had benefits from lower pension related charges and a favorable tax rate:

In the first quarter, Timken posted net

ChartTKR Shares Outstanding data by YCharts

This article was written by

Quoth the Raven profile picture
This page and all of its contributor content is operated by Quoth the Raven Research, LLC. Please read this disclaimer first and foremost: https://quoththeravenresearch.com/disclaimerterms-of-service/ Quoth the Raven is Christopher Irons from Philadelphia, PA. Commentary by QTR has been featured in Barron's, the Wall Street Journal, Financial Times, Yahoo Finance, Reuters, Bloomberg and many other financial outlets. QTR is a speaker at numerous financial conferences annually. QTR was named to Benzinga's "10 Financial Twitter Names to Follow in 2018" and in late 2017 was named to Forbes' "Top 100 Twitter Accounts for Finance". In 2016, QTR's work was selected as a finalist for the Sohn Investment Conference Idea Contest. In 2014, he was named to Seeking Alpha's Top List of Best Performing Financial Bloggers and was TipRanks' #6 Performing Financial Blogger (Out of 4,000+). View QTR's track record on TipRanks: https://www.tipranks.com/bloggers/quoth-the-raven View QTR's website: http://www.quoththeravenresearch.com View QTR's Twitter: https://twitter.com/QTRResearch Listen to the QTR podcast: http://quoththeraven.podbean.com All content contained herein is bound to both Seeking Alpha's terms of service, as well as the terms of service found here: https://quoththeravenresearch.com/disclaimerterms-of-service/

Analyst’s Disclosure: I am/we are long TKR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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