September 26, 2011 - The Timken Company (TKR-NYSE) develops, manufactures, markets, and sells anti-friction bearings and related products and steel products primarily in the United States and Europe. The company's Mobile Industries segment provides bearings, power transmission components, and related products and services to original equipment manufacturers and suppliers of building, agricultural, construction, and mining equipment, as well as passenger cars, light trucks, medium and heavy-duty trucks, rail cars, and locomotives; and to automotive aftermarket and heavy-duty truck distributors.

The company's Aerospace and Defense division manufactures bearings, helicopter transmission systems, rotor head assemblies, turbine engine components, and gears and other precision flight-critical components for commercial and military aviation applications; and provides aftermarket services, including repair and overhaul of engines, transmissions, and fuel controls, as well as aerospace bearing repair and component reconditioning services. This segment also manufactures precision bearings, higher-level assemblies, and sensors for equipment manufacturers of health and positioning control equipment.

Its Steel group produces and sells carbon and alloy steel products in solid and tubular sections to automotive, industrial, and energy sectors for use in oil country drill pipe, bits, and collars; gears, hubs, axles, crankshafts, and connecting rods; and bearing races and rolling elements, bushings, fuel injectors, and wind energy shafts. The Timken Company was founded in 1899 and is headquartered in Canton, Ohio.

This stock went from $9.90 in early 2009 to $57.83 on April 26 this year. That's a gain of 484% in 2 years. Pretty good return. Now investors have to determine if it has any more upside or whether the run is done. This may help.

Earnings took a beating in 2009, dropping to 53 cents a share from $3.26 in '08. But last year, they came right back, hitting $2.95. This year will be much better. Ten analysts have a consensus estimate of $4.52, then see 2012 at $5.11. The stock currently sells for $37.58 a share. If next year's earnings are as predicted, this is a stock selling for 7 times forward earnings. That's pretty cheap.

The company set a record in the first half of this year and should finish with stellar results. Steel and Process Industries divisions were the leaders, pushing sales and earnings way above last year's numbers in the same time period (30% higher in sales, 43.5% more in earnings). Management feels strongly enough about the rest of the year that it raised its guidance for earnings for 2011, citing that further gains in Process Industries and Steel groups will continue to lead the way. Also helping is the new acquisition (done on July 1) of Philadelphia Gear, a leading provider of gear-drive systems and aftermarket services for the industrial and military marine sectors.

To keep up with global demand, the company added about 120,000 tons of annual steel production capacity in early 2011. Management expects steel demand will increase the remainder of this year and well into 2012. Expectations are for the company's traditional markets of commercial, aerospace, rail and trucks to improve as the economy gains better traction.

The company is looking abroad for better growth, especially in emerging markets. With a rising middle class in countries like Brazil, Russia, China, and India, demand for cars, trucks and other products that require Timken parts will only get stronger. That also means new roads, bridges and other infrastructure projects will be needed, all of which use Timken products. Earnings for the next 5 years are projected to grow by 15.68% annually compared to 3.85% over the last 5 years.

Essential numbers:
- Market Cap: $3.13 billion
- Price to book: 1.43
- Operating margin (last 12 months): 13.29%
- Profit Margin: 8.38%
- Return on assets: 9.58%
- Revenues (last 12 months): $4.71 billion
- Total cash: $632.8 million
- Total cash per share: $6.45
- Total debt is $520.9 million
- Current ratio: 3.27
- Book value per share: $22.30
- Beta: 2.13
- Shares Outstanding: 98.14 million
- Float: 89.66 million
- Insiders own 17.32% of the stock'
- Institutions have 73.5% of the Float
- Dividend: 80 cents annually.
- Yield: 2.5%

- Company Web site: www.timken.com

    Ted Allrich