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Shorter-cycle industrial companies leveraged to the ongoing manufacturing recovery haven't really been in favor lately, and Columbus McKinnon (NASDAQ:CMCO ) shares have slid about 10% since my last update. That comes despite a late May earnings report that was pretty good, not to mention ongoing opportunities to leverage the company's capabilities into more advanced material handling and intelligent motion markets, as well as the recent Dorner acquisition.

Columbus McKinnon isn't a particularly sexy stock, and given the recent concerns that the industrial recovery is already peaking, I can understand why some investors may be looking elsewhere. I believe that's a mistake, though, as Columbus McKinnon is making investments into product development that many of its rivals aren't, and I believe the company is looking at mid-single-digit long-term revenue growth and improving margins as it grows market share, improves its go-to-market strategy, and leverages product/market expansion opportunities.

Columbus McKinnon saw another year-over-year decline in revenue in its last quarter (down 2%), but that result was still modestly better than expected (beating expectations by about 2%). Moreover, the 12% sequential revenue growth was encouraging, and the 6% year-over-year and 24% quarter-over-quarter order growth even more so.

Columbus posted a 1.12x book-to-bill in the last quarter, with backlog growing 13% qoq and reaching the highest level since June of 2017. Management is seeing a broad recovery across its major markets, with healthy demand in government/defense, utilities, steel/metals, heavy equipment, construction, and general industrial. Even energy (oil/gas) has been showing signs of recovery, likely due to the company's greater leverage to sub-markets like LNG as opposed to upstream E&P, though that market is also recovering.

I expect that the utility market will remain healthy for 2021 as utilities continue to spend on system upgrades (a driver noted by electrical equipment suppliers like Eaton (ETN) and Schneider (OTCPK:SBGSY)), and I likewise expect to see ongoing improvement in general industrial and heavy machinery demand for at least a few more quarters. Demand from the steel and metals sector should also be set to improve, as strong metal prices are leading many companies to accelerate maintenance and expansion plans.

Other markets like construction and entertainment are more mixed. Construction is coming back, but project pipelines are fairly thin right now and likely won't really improve until 2022. For entertainment, the reopening of venues across the country should lead to catch-up spending, though this isn't as large of a market for Columbus as it used to be.

I remain bullish on the Dorner deal, which management closed on earlier this year. Dorner expands the company into conveyor systems, which I believe is a logical horizontal expansion for material handling and motion.

About 40% of Dorner's revenue comes from industrial automation (precise specialty conveyor systems), and I expect to see significant investments in automation over the next couple of years as companies look to make their manufacturing processes more efficient and reliable. Combined with the company's hoist and crane offerings, I see Dorner also offering some share-of-wallet growth opportunities, and Dorner also brings Columbus into some new addressable markets like food/beverage and pharmaceuticals.

Dorner also gives Columbus exposure to the major investment cycle in logistics/warehouse automation. While a lot of attention goes to the increasing use of robots in logistics and warehouse settings, the reality is that conveyor systems are also a significant part of facility automation, and Columbus should benefit accordingly (as well, perhaps, as some incremental hoist/crane opportunities).

Columbus management also has growth plans above and beyond Dorner. Following up on the successful Blueprint for Growth plan that led to meaningful margin and working capital efficiency improvements (as well as accelerated growth), management is launching the Blueprint for Growth 2.0, and I expect we'll hear more about this on the next earnings call.

There are four major targets within this new plan, including strengthening, growing, expanding, and re-imagining the core of Columbus McKinnon's operation. Distilling it down, management will be focused on improving its share in existing served markets through improved go-to-market strategies and product development, while also looking to enter new adjacent markets, particularly by leveraging opportunities in automation and intelligent motion. All in all, it's a logical extension of the company's strategy over the last several years.

I don't want to oversell Columbus McKinnon's leverage to factory automation or intelligent motion - we're not talking about Teradyne (TER) (a leader in collaborative robots), Cognex (CGNX) (machine vision), or so on. Instead, we're talking about an established player in material handling shifting their product development focus to where the more exciting growth opportunities are - "riding along with" and facilitating the move toward more automated material handling and motion systems on factory floors and in warehouses.

I expect FY'22 to be a strong year for Columbus McKinnon as it leverages the broader industrial recovery and adds in the acquired revenue from Dorner. While I do expect growth to slow, I believe the company can generate mid-single-digit long-term revenue growth as it leverages opportunities in smarter/automated material handling and motion, including new product development and entry/expansion into new markets (like food/beverage, pharmaceuticals, and logistics).

I believe we've already seen the bulk of the margin improvement that is going to occur, as FCF margins have improved from the mid-single-digits to the low double-digits, but I do see the opportunity for further improvement as EBITDA margins improve from the mid-teens (pre-pandemic) toward 20% and FCF margins move more slowly towards the mid-teens.

Discounting the cash flows I expect from the company, and factoring in the recent share price weakness, I believe investors can reasonably expect a long-term annualized total return from Columbus McKinnon just into the double-digits. I do have some near-term concerns where sentiment is concerned, but I believe management has a strategic plan in place that will deliver above-cycle growth, and as that happen I believe these shares can and will re-rate higher.

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