PH - Kennametal May Return To Growth This Quarter But The Longer-Term Opportunity Isn't So Exciting

• Short-cycle recoveries in autos and manufacturing have picked up steam, and Kennametal could post organic growth in FQ3'21, but the margin outlook remains cloudy on meaningful mix volatility (lower aerospace).
• Self-help should pay dividends in the coming quarters as the manufacturing restructuring wraps up, but there are still longer-standing issues regarding tool demand growth in the company's core markets.
• Short-cycle names like Kennametal have historically underperformed once the PMI breaks through 55, but this cycle has all new drivers, including the pandemic and unprecedented government stimulus efforts.
• Kennametal's long-term revenue growth, margins, and FCF generation potential all still look lackluster, relegating it to more of a cyclical trading idea than core holding.

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