In this commentary, I will examine The Timken Company’s (NYSE:TKR) latest earnings update (31 December 2018) and compare these figures against its performance over the past couple of years, as well as how the rest of the machinery industry performed. As an investor, I find it beneficial to assess TKR’s trend over the short-to-medium term in order to gauge whether or not the company is able to meet its goals, and ultimately sustainably grow over time.
Did TKR beat its long-term earnings growth trend and its industry?
TKR’s trailing twelve-month earnings (from 31 December 2018) of US$303m has jumped 49% compared to the previous year.
Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 19%, indicating the rate at which TKR is growing has accelerated. How has it been able to do this? Let’s take a look at if it is solely owing to an industry uplift, or if Timken has seen some company-specific growth.
In terms of returns from investment, Timken has fallen short of achieving a 20% return on equity (ROE), recording 19% instead. However, its return on assets (ROA) of 7.9% exceeds the US Machinery industry of 7.6%, indicating Timken has used its assets more efficiently. Though, its return on capital (ROC), which also accounts for Timken’s debt level, has declined over the past 3 years from 16% to 12%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 17% to 102% over the past 5 years.
What does this mean?
Timken’s track record can be a valuable insight into its earnings performance, but it certainly doesn’t tell the whole story. Positive growth and profitability are what investors like to see in a company’s track record, but how do we properly assess sustainability? You should continue to research Timken to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for TKR’s future growth? Take a look at our free research report of analyst consensus for TKR’s outlook.
- Financial Health: Are TKR’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 31 December 2018. This may not be consistent with full year annual report figures.
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