Hillenbrand, Inc. (NYSE:HI), a diversified industrial equipment company, was severely battered by the market last year. Since the end of January 2019, the stock has lost nearly a quarter of its value due to a few reasons inclusive of a trade war and recession fears spurred by mixed economic data. The overall market tackled precisely the same headwinds; however, while the S&P 500 (SPY) recuperated propped up by the U.S.-China negotiations progress that allayed investors and confidence that the global economic slump had been temporarily staved off, HI failed to reclaim the abandoned heights and steady upward movement in H2 did not offset the steep decline in the first half of the year.
Apart from macro uncertainty, another resilient downside catalyst was 3Q FY19 EPS and revenue miss when actual results fell significantly short of the Wall Street forecasts. What is more, investor response to the Milacron acquisition was lukewarm and did not potentiate a more vigorous rally.
The deal was announced on July 12; initially, the market's response was bullish and the price edged higher, but after July 16, momentum evaporated, as investors shifted focus to the 3Q FY19 report.
Trading at ~6.9x Forward EV/EBITDA with Return on Total Capital of above 12%, 2.8% yielding HI is undervalued and offers a buying opportunity worth considering.
The top line
Hillenbrand's business encompasses two segments: Process Equipment Group and Batesville. The Americas is its most significant region of operations; it accounted for 57% of revenue in FY 2019. Asia was in second place with a 24% share, while EMEA (Europe, the Middle East, and Africa) had the lowest contribution to the top line. HI is not a fast-growing company; in the last five years, its revenue had been increasing at a glacial pace with only 1.6% CAGR, while EBITDA improved 2%. In FY 2019 (ended September 2019), HI delivered a 2.1% increase in revenue and 12% EBITDA growth.
