SKF Looks Undervalued For A Short-Cycle Play, But There Are Some Issues

 I thought SKF (OTCPK:SKFRY) had some appeal as a contrarian idea back in April, and the outcome of that call is a little convoluted. The local shares had been beating the multi-industrial peer group, but a disappointing second quarter result hit the shares and the point-to-point performance has been a modest underperformance. If you look at the ADRs, though, even with the post-earnings disappointment, the shares have risen almost 25%, beating the peer group and S&P 500 by a wide margin as the Swedish krona has moved significantly in the interim.

While SKF has participated to a point in the short-cycle rebound anticipation rally, the company's actual performance and guidance are worse than many peers and enough to cause some concern. On top of that, there are some earnings quality issues that I think need at least be discussed. On the other hand, management has been moving aggressively to cut costs and automate the business, the valuation is quite undemanding, and this is a very cyclical company leveraged to improvements in short-cycle manufacturing and automotive markets.

 

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SKF Looks Undervalued For A Short-Cycle Play, But There Are Some Issues