Aug 27, 2010 10:04 AM PDT
Astec Industries Inc. (ASTE) is a vertically integrated company in the road manufacturing business. The company owns 14 different manufacturing companies which cover the entire range of needs for road construction, everything from mining of the materials to the processing of road construction material to the final application equipment for the asphalt. Astec is in a unique position currently because the US government is set to spend approximately $68 Billion during fiscal year 2009 on infrastructure spending of which Astec will be a direct beneficiary. The government spending is a combination of the President Obama’s American Recovery and Reinvestment Act, as well as a bill which former President Bush signed in September of 2008. Astec announced earnings on 4/21/09 of $.33 per share which while much lower than the previous year but beat analyst expectations of $.30 per share. The lower earnings of the company was due in part to the economic uncertainty surrounding the stimulus spending which was finalized during the first quarter of 2009. Many customers of Astec were not willing to put in large orders for equipment during the quarter, which they may not have had a need for if the government spending had not coming through, this led Astec to utilize the lull by build a good amount of inventory of various equipment.
From a technical analysis point of view ASTE is in the position to possibly break out of a short term trading range to up side, as shown by the blue channel lines on the chart below. Volume indicators show an increase in volume of almost 3 times the 50 day moving average of volume during trading on March 21st. The increase in volume is partly due to the unusually large amount of press coverage the company has been receiving recently with the announcement of their quarterly results. The RSI indicator has fallen from the overbought position of almost 90 during the middle of March 2009 to its current reading of 44, and looks like it to could be breaking out of a current short term downward trend to the upside. ASTE is currently above short and medium term price moving averages and is quickly moving upward toward the longer term 200 day moving average (white moving average line on the chart).
From a fundamental analysis point of view Astec Industries is in a very good position to take advantage of the increases in infrastructure spending. One major point in the financials is that the company does not carry any long term debt. Astec has a current assets to current liabilities ratio of nearly 3, and a total assets to total liabilities ratio of 3.8. Revenues for the first quarter of 2009 increased by 5 percent over fourth quarter 2008, showing that the worst times for the business during the current economic cycle could be in the past. On an annual basis ending 12/31/08 Astec has increased revenues each of the past four years by an average of 17 percent. One item which is currently helping the company is the price of steel which has dropped some 30 percent from its peak in August of 2008. With Astec needing a lot of steel to manufacture much of the equipment it makes, the company is very sensitive to steel price movements. The stock is current trading around $27, I’m looking for the company to make it back to a resistance line at $33 in the very near term and break through that resistance to the upside. In the longer term with government spending continuing and the economic cycle moving into a recovery stage I am looking for ASTE stock to be trading in the $50 to $60 range.
