TKR Timken Co

The Timken Company (TKR) reported a record second quarter as demand remained strong. This Zacks #1 Rank (strong buy) also raised full year guidance as it expects record sales and earnings in 2011. With the recent stock sell off, shares are now dirt cheap at just 7.6x forward estimates.

Timken manufactures antifriction bearings and power transmission products and services as well as alloy steel and components.

Its friction management and power transmission services a variety of markets including aerospace, automotive, consumer, energy, heavy industry, power generation and rail.

Timken Surprised By 7% in the Second Quarter

On July 28, Timken reported its second quarter results and beat the Zacks Consensus by 8 cents per share. Earnings per share were $1.22 compared to the consensus of $1.14. It was the 8th consecutive earnings beat.

Sales jumped 31% to $1.3 billion based on growing demand in the company's broad industrial markets as well as favorable effects from pricing, currency and material surcharges.

The Process Industries and Steel segments were stronger than expected.

Process Industries saw sales rise 46% to $308.3 million compared to $211.6 million a year ago based on higher demand from industrial distribution, growth in Asia, growing sales of new products and a small improvement in demand from the capital equipment sector.

The Steel segment saw a sales increase of 49% to $338.1 million due to stronger demand, especially in the oil and gas and industrial market sectors. Raw material surcharges also increased about $50 million from the year ago quarter.

Expects a Record 2011- Raised Full Year Guidance

In July, Timken was bullish about 2011. Coming off of a record second quarter and stronger than expected demand in its Steel and Process Industries segments, the company was feeling good that 2011 would be a record year in both sales and earnings.

Sales are expected to increase 25% and 30% in 2011. This will also be boosted by the second quarter $200 million acquisition of Philadephia Gear.

Full year guidance was raised to the range of $4.30 to $4.50 per share from the prior guidance of $3.80 to $4.10 per share.

Zacks Consensus Estimates Rise

Given the raised guidance and earnings beat, it's not surprising that analysts adjusted their estimates for 2011 higher.

The 2011 Zacks Consensus rose to $4.50 from $4.25 per share in the last 30 days. This is at the high end of the company's guidance range.

This is also earnings growth of 52.4% over 2010 as the company made only $2.95 in 2010.

Timken is Dirt Cheap

Shares have sold off during the recent stock market pull back which has resulted in Timken being even cheaper than before.

In addition to a P/E under 8, the company also has a price-to-book of just 1.5. This is well under the cut-off for value which is 3.0.

Timken's price-to-sales ratio of 0.7 also indicates value as company's with a P/S ratio under 1.0 are usually considered undervalued.

Shareholders are also rewarded with a dividend, currently yielding a not-too-shabby 2.1%.

Investors, worried about global growth, have sold the industrial and cyclical stocks in recent weeks making Timken an attractive value stock at its current price levels.

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Turnaround Trader and Insider Trader services. You can follow her at twitter.com/traceyryniec.

 
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