Timken's Strong Market Position in Renewable Energy and Growth in Newer Markets: Oppenheimer's Optimistic Outlook

Oppenheimer analyst Bryan F. Blair reiterated an Outperform rating on Timken Company TKR, lifting the price target to $97 from $90.

The bullish ratings mirror the company's value-added portfolio transformation, realistic drivers for medium-term earnings, and strategic M&A, notes the analyst.

Demand trends remain positive across most end-markets of TKR, he adds.

The company's compelling outlook for renewable energy, in which Timken has the most significant OE exposure, is also a positive, notes the analyst.

Blair is also bullish on sustained growth across Timken's other "newer" markets, including automation, industrial services, marine, food & bev., and passenger rail applications.

The analyst applauds Timken's steady portfolio evolution and shifting mix toward less-cyclical, higher-margin applications.

The market underappreciates Timken's balance sheet optionality and runway for inorganic earnings upside.

The analyst suspects 2Q profitability will be reasonably in line with 1Q

levels (net of the addition of Nadella operations and moderately higher expenses), implying 2H EPS down 5% to up 12% y/y to reach the current 2023 adjusted EPS guidance of $7.00-7.50.

Blair increased 2023/24E EPS to $7.45/7.85 from $7.42/7.70 and raised the price target from $90 to $97 (equating to 12.7x P/E on average 2023/24E, essentially in line with historical TKR average).

Price Action: TKR shares are trading higher by 3.23% to $87.63 on the last check Monday.