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Applied Industrial Technologies (AIT)
NYSE:AIT
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Applied Industrial Technologies
(NYSE:AIT)
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Rating:72Outperform
Price Target:
$313.00
â–²(11.48% Upside)
Action:DowngradedDate:01/28/26
The score is driven primarily by strong financial performance—durable margins, de-risking balance sheet, and robust free cash flow. Earnings-call commentary is broadly constructive with improved growth outlook and order momentum, though LIFO-related margin headwinds temper confidence. Technicals are currently soft versus the short-term trend, and valuation (P/E ~26.8 with ~0.70% yield) is not especially supportive.
Positive Factors
Free Cash Flow Strength
Applied's consistently strong operating cash flow and near-par free cash flow to reported earnings indicate durable cash generation. This sustained FCF base funds buybacks, dividend increases and targeted M&A, increasing financial flexibility and resilience across economic cycles.
Improving Profitability
Material margin improvement since FY2021 reflects scalable operations, pricing power and cost control. Higher and stable gross and net margins enhance earnings durability, support internal reinvestment and shareholder returns, and provide a cushion against cyclical end-market weakness.
De-risked Balance Sheet
Markedly lower leverage and modest absolute debt provide durable financial flexibility. A de-risked balance sheet lowers refinancing and interest-rate vulnerability, enabling opportunistic bolt-on M&A, steady buybacks and dividend growth without materially increasing financial risk.
Negative Factors
LIFO Margin Headwind
Elevated LIFO expense creates a recurring accounting drag on reported gross and EBITDA margins while input-cost volatility persists. That erodes headline profitability, complicates period-to-period comparability and can temper investor confidence in near-term reported earnings.
Cooled Organic Revenue Growth
A low-single-digit organic growth profile implies a more mature business and increases reliance on pricing and acquisitions to expand revenue. That can cap long-term upside, raise execution risk from M&A dependence and limit the pace at which margins and returns can expand.
Working-Capital Volatility
Historical swings in cash conversion driven by working-capital variation create volatile FCF timing. That unpredictability complicates capital allocation, may force short-term financing needs in weak quarters and makes multi-quarter planning for buybacks, dividends and M&A less certain.
Applied Industrial Technologies (AIT) vs. SPDR S&P 500 ETF (SPY)
Market Cap
$10.53B
Dividend Yield0.7%
Average Volume (3M)372.64K
Price to Earnings (P/E)26.9
Beta (1Y)1.14
Revenue Growth4.03%
EPS Growth5.93%
CountryUS
Employees6,818
SectorIndustrials
Sector Strength72
IndustryIndustrial - Distribution
Share Statistics
EPS (TTM)2.54
Shares Outstanding37,302,440
10 Day Avg. Volume287,213
30 Day Avg. Volume372,644
Financial Highlights & Ratios
PEG Ratio8.07
Price to Book (P/B)4.83
Price to Sales (P/S)1.95
P/FCF Ratio19.13
Enterprise Value/Market Cap1.02
Enterprise Value/Revenue2.26
Enterprise Value/Gross Profit7.54
Enterprise Value/Ebitda17.67
Forecast
1Y Price Target
$311.67Price Target Upside11.01% Upside
Rating ConsensusStrong Buy
Number of Analyst Covering3
EPS Forecast (FY)10.67
Revenue Forecast (FY)$4.87B
Applied Industrial Technologies Business Overview & Revenue Model
Company DescriptionApplied Industrial Technologies, Inc. distributes industrial motion, power, control, and automation technology solutions in North America, Australia, New Zealand, and Singapore. It operates through two segments, Service Center Based Distribution, and Fluid Power & Flow Control. The company distributes bearings, power transmission products, engineered fluid power components and systems, specialty flow control solutions, advanced automation products, industrial rubber products, linear motion components, automation solutions, tools, safety products, oilfield supplies, and other industrial and maintenance supplies; and motors, belting, drives, couplings, pumps, hydraulic and pneumatic components, filtration supplies, valves, fittings, process instrumentation, actuators, and hoses, filtration supplies, as well as other related supplies for general operational needs of customers' machinery and equipment. It also operates fabricated rubber shops and service field crews that install, modify, and repair conveyor belts and rubber linings, as well as offer hose assemblies. In addition, the company provides equipment repair and technical support services. It distributes industrial products through a network of service centers. The company serves various industries, including agriculture and food processing, cement, chemicals and petrochemicals, fabricated metals, forest products, industrial machinery and equipment, life sciences, mining, oil and gas, primary metals, technology, transportation, and utilities, as well as government entities. The company was formerly known as Bearings, Inc. and changed its to name to Applied Industrial Technologies, Inc. in 1997. The company was founded in 1923 and is headquartered in Cleveland, Ohio.
How the Company Makes MoneyApplied Industrial Technologies generates revenue primarily through the sale of industrial products and components to various sectors, including manufacturing and construction. The company's revenue model is based on the distribution of these products, along with value-added services that provide customers with tailored solutions to their operational needs. Key revenue streams include direct sales of industrial parts, MRO supplies, and specialized services such as inventory management and technical support. AIT also benefits from long-term relationships with major manufacturers, allowing them to offer a comprehensive range of products while leveraging bulk purchasing to optimize margins. Additionally, strategic partnerships with suppliers and manufacturers help sustain competitive pricing and broaden their product offerings, contributing significantly to their overall earnings.
Applied Industrial Technologies Earnings Call Summary
Earnings Call Date:Jan 27, 2026
(Q2-2026)
| % Change Since: |
Next Earnings Date:Apr 23, 2026
Earnings Call Sentiment Positive
The call presented multiple constructive operational and financial signals: solid consolidated sales growth (8.4%), improving order trends (engineered solutions orders +10% and automation orders +20%), strong cash generation, successful integration of Hydrodyne, continued buybacks and dividend increases, and encouraging early fiscal Q3 organic growth. Headwinds were concentrated in higher-than-expected LIFO expense that materially pressured reported margins, a seasonally weak December, mixed performance across certain end markets and some segment-level organic weakness (engineered solutions organic ~0.5%). Management characterized many negatives as timing or mix-related and articulated confidence in margin recovery and mid/high‑teen incremental EBITDA targets at mid-single-digit organic growth. Balancing the broad set of operational positives and strategic actions against the notable LIFO-driven margin drag and a few soft end markets, the highlights substantially outweigh the lowlights.Q2-2026 Updates
Positive Updates
Consolidated Sales Growth
Consolidated sales increased 8.4% year-over-year in the quarter, with acquisitions contributing ~6 percentage points and currency a +0.2 point tailwind.
Organic Sales Momentum
Reported organic sales growth of 2.2% year-over-year for the quarter, with underlying strengthening through the period (November organic growth nearly mid-single-digits) and early fiscal Q3 month-to-date January organic sales up mid-single-digits year-over-year.
Engineered Solutions Order Strength
Orders in the engineered solutions segment increased over 10% year-over-year — the strongest quarterly order growth in that segment in over four years; book-to-bill was above 1 for the quarter.
Automation Outperformance
Automation orders rose 20% year-over-year in the quarter and organic automation sales were up ~3% year-over-year, indicating sustained demand for automation solutions.
Hydrodyne Acquisition Success
Hydrodyne generated over $30 million of EBITDA in the first 12 months of ownership, delivered >13% EBITDA margins in the quarter, and was modestly accretive to consolidated EBITDA, demonstrating successful integration and contribution.
Service Center Resilience
Service center segment organic sales increased 2.9% year-over-year (US service center sales up >4%), with double-digit growth in primary metals and aggregates service-center sales and mid-single-digit organic sales traction in January.
Margin Performance Excluding LIFO
Excluding LIFO impact, consolidated gross margin was 31.0%, up ~34 basis points year-over-year, and underlying margin performance and cost control led to reported EBITDA rising 3.9% year-over-year with reported EBITDA margin (12.1%) remaining within guidance.
Strong Cash Generation and Capital Deployment
Operating cash flow was $99.7M and free cash flow $93.4M (98% conversion vs. net income). Cash on hand ~$406M, net leverage ~0.3x, repurchased >$143M of shares YTD and announced an 11% quarterly dividend increase.
Strategic M&A and Regional Bolt-On
Announced acquisition of Thompson Industrial Supply (~$20M annual sales) to expand Southern California service center footprint; management expects additional targeted M&A over next 12–18 months focused on engineered solutions and service center optimization.
Negative Updates
Higher-Than-Expected LIFO Expense
LIFO expense was ~$6.9M in the quarter (vs. the $4–5M assumed in guidance and vs. <$1M in prior-year Q2), creating an unfavorable ~54 basis point impact on gross margins and ~52 basis point headwind to EBITDA year-over-year.
Guidance Revision Reflecting Greater LIFO
Full-year LIFO expense guidance increased to $24–26M from prior $14–18M, and EPS guidance was tightened to $10.45–10.75 (from $10.10–10.85), reflecting timing and margin headwinds tied to inventory accounting and inflation.
Seasonally Weak December Sales
December experienced seasonally weak and choppy sales activity with average daily sales rates notably below normal patterns, contributing to softer quarterly volume trends despite management characterizing it as noise.
Segment Mix and Organic Weakness in Engineered Solutions
Engineered solutions sales increased 19.1% overall, but organic sales were only 0.5% year-over-year (acquisitions contributed ~18.6 points), and the segment's EBITDA margin declined ~200 basis points year-over-year (including ~55 bps LIFO headwind).
Declines in Several End Markets
Several top end markets declined year-over-year in the quarter, notably lumber & wood, chemicals, oil & gas, rubber & plastics, and refining, offsetting strength in metals, aggregates, utilities/energy, mining, machinery, transportation, and construction.
Flow Control and Some Product Weakness
Flow control sales were modestly lower year-over-year despite flow control orders rising a high-single-digit percent; flow control segment margin performance was pressured by lower sales and project phasing.
Reported Operating Expense Increase
Selling, distribution & administrative expenses increased 11.1% reported (organic constant-currency SD&A +1.4% vs. organic sales up 2.2%), reflecting inflationary pressures and growth investments even as cost-control initiatives partially offset increases.
Interest Expense and Swap Maturity Impact
Incremental interest expense is expected in the second half after an interest rate swap matured in January, partially offsetting EPS benefits from a slightly lower share count and lower tax rate assumptions.
Company Guidance
Applied updated fiscal 2026 guidance to EPS of $10.45–$10.75 (prior $10.10–$10.85) on expected sales growth of >5.5% to up to 7% (prior 4–7%) and EBITDA margins of 12.2%–12.4% (prior 12.2–12.5%); the company now assumes LIFO expense of $24–$26M (vs. prior $14–$18M), pricing will contribute ~210–230 bps of year‑over‑year sales (up from 150–200 bps), and full‑year organic sales of 2.5%–4% (midpoint ≈4%). For Q3, management expects organic sales to be low‑ to mid‑single‑digit, gross margin to decline to the low‑30% range, and Q3 EBITDA margin to be 12.2%–12.4%; inorganic M&A and FX are expected to add ~50 bps of growth in the back half, the assumed tax rate is ~23%, and the guidance excludes future M&A or additional repurchases. Management noted recent quarterly metrics that feed into the outlook, including Q2 LIFO of ~$6.9M, Q2 reported EPS of $2.51, cash on hand of ~$406M and net leverage of ~0.3x, and reiterated opportunistic capital allocation (YTD repurchases ~550k shares for $143M).Applied Industrial Technologies Financial Statement Overview
Summary
Strong and improving profitability (TTM net margin ~8.5% vs. ~4.5% in FY2021), declining leverage (TTM debt-to-equity ~0.18), and standout cash generation (TTM FCF ~$458M; FCF/NI ~0.94; TTM FCF growth ~75.6%). Offsets are cooled revenue growth (~1.9% TTM/FY2025) and historically uneven cash conversion driven by working-capital swings.Income Statement
Results show steady, high-quality profitability with improving scale. In TTM (Trailing-Twelve-Months), revenue is about $4.75B with solid gross profitability (~30%) and a healthy net margin (~8.5%). Profitability has improved meaningfully versus FY2021 (net margin ~4.5%) and remains resilient through the cycle. The main offset is that recent revenue growth has cooled to low-single-digits (TTM ~1.9% and FY2025 ~1.9%) after the stronger expansion in FY2022–FY2023, suggesting a more mature growth profile near-term.82
Very Positive
Balance Sheet
Leverage looks well-contained and equity returns are strong. Total debt is ~$572M, with debt-to-equity improving markedly over time and notably low in TTM (Trailing-Twelve-Months) (~0.18) versus higher levels in prior years (e.g., ~0.89 in FY2021). Returns on shareholder capital are consistently attractive (roughly low-20% range), indicating efficient capital use. A watch item is that reported equity/asset levels shift materially across periods, but even using annual figures the balance sheet trend is de-risking and remains supportive.78
Positive
Cash Flow
Cash generation is a clear strength. Operating cash flow is strong (TTM (Trailing-Twelve-Months) ~$488M) and free cash flow is robust (TTM ~$458M), with free cash flow running close to reported earnings (TTM free cash flow to net income ~0.94), indicating good earnings quality. Free cash flow growth is also strong in the latest period (TTM ~75.6%). The key weakness is that cash conversion has been uneven historically (operating cash flow relative to net income was well below 1x in FY2022–FY2024 and improves to ~1.03x in TTM), implying working-capital swings can create volatility.85
Very Positive
| Breakdown | TTM | Jun 2025 | Jun 2024 | Jun 2023 | Jun 2022 | Jun 2021 |
|---|---|---|---|---|---|---|
Income Statement | ||||||
| Total Revenue | 4.75B | 4.56B | 4.48B | 4.41B | 3.81B | 3.24B |
| Gross Profit | 1.43B | 1.38B | 1.34B | 1.29B | 1.11B | 935.52M |
| EBITDA | 608.83M | 579.66M | 571.03M | 527.67M | 410.13M | 263.01M |
| Net Income | 403.79M | 392.99M | 385.76M | 346.74M | 257.41M | 144.76M |
Balance Sheet | ||||||
| Total Assets | 3.16B | 3.18B | 2.95B | 2.74B | 2.45B | 2.27B |
| Cash, Cash Equivalents and Short-Term Investments | 405.99M | 388.42M | 460.62M | 344.04M | 184.47M | 257.75M |
| Total Debt | 572.30M | 572.30M | 734.94M | 622.10M | 800.25M | 919.99M |
| Total Liabilities | 1.28B | 1.33B | 1.26B | 1.28B | 1.30B | 1.34B |
| Stockholders Equity | 1.87B | 1.84B | 1.69B | 1.46B | 1.15B | 932.55M |
Cash Flow | ||||||
| Free Cash Flow | 456.85M | 465.20M | 346.53M | 317.49M | 169.45M | 225.84M |
| Operating Cash Flow | 486.87M | 492.38M | 371.39M | 343.97M | 187.57M | 241.70M |
| Investing Cash Flow | -51.15M | -318.75M | -95.41M | -60.83M | -35.66M | -44.93M |
| Financing Cash Flow | -339.94M | -245.61M | -156.47M | -126.89M | -223.03M | -213.04M |
Applied Industrial Technologies Technical Analysis
Positive
280.76
Price Trends
271.77
Positive
262.70
Positive
256.11
Positive
Market Momentum
2.67
Positive
53.19
Neutral
34.88
Neutral
Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For AIT, the sentiment is Positive. The current price of 280.76 is above the 20-day moving average (MA) of 277.99, above the 50-day MA of 271.77, and above the 200-day MA of 256.11, indicating a bullish trend. The MACD of 2.67 indicates Positive momentum. The RSI at 53.19 is Neutral, neither overbought nor oversold. The STOCH value of 34.88 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Positive sentiment for AIT.
Applied Industrial Technologies Risk Analysis
Applied Industrial Technologies disclosed 20 risk factors in its most recent earnings report. Applied Industrial Technologies reported the most risks in the "Ability to Sell" category.
Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy
Latest Risks Added 0 New Risks
Applied Industrial Technologies Peers Comparison
UnderperformOutperform
Sector (63)
Name | Overall Rating | Market Cap | P/E Ratio | ROE | Dividend Yield | Revenue Growth | EPS Growth |
|---|---|---|---|---|---|---|---|
77 Outperform | $53.37B | 31.70 | 48.10% | 0.86% | 4.83% | -3.60% | |
75 Outperform | $52.20B | 41.56 | 33.30% | 2.10% | 6.92% | 5.98% | |
72 Outperform | $10.53B | 26.86 | 22.02% | 0.70% | 4.03% | 5.93% | |
72 Outperform | $1.19B | 16.72 | 22.61% | 3.48% | 0.16% | 2.99% | |
66 Neutral | $14.39B | 22.67 | 12.91% | 0.72% | 5.28% | 1.97% | |
64 Neutral | $5.23B | 25.09 | 14.84% | 3.96% | -1.35% | -22.24% | |
63 Neutral | $10.79B | 15.43 | 7.44% | 2.01% | 2.89% | -14.66% |
* Industrials Sector Average
AIT
Applied Industrial Technologies
280.76
37.48
15.41%
FAST
Fastenal Company
44.63
8.45
23.34%
MSM
MSC Industrial
93.07
18.06
24.08%
GIC
Global Industrial Company
33.22
9.94
42.70%
GWW
WW Grainger
1,117.18
117.95
11.80%
WCC
Wesco International
297.36
117.81
65.61%
Glossary
BuyA stock rated as a "Buy" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests the stock is likely to deliver higher returns compared to other stocks in the same sector or market index. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
HoldA stock rated as a "Hold" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly compelling nor unfavorable for investment. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
SellA stock rated as a "Sell" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests the stock may deliver lower returns compared to other stocks in the same sector or market index. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
Disclaimer
This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.