Kennametal (KMT) shares surged 8.3% in the latest session, closing at $33.28, amid increased trading volume. Over the past four weeks, the stock has gained 5.5%. This rally is fuelled by positive developments in aerospace and defence, energy, and engineering markets.
The company benefits from increased aerospace build rates in the Americas, easing supply-chain issues, and strong defence spending. Additionally, the energy market remains robust, and there are signs of recovery in general engineering. Kennametal expects to report quarterly earnings of $0.35 per share, reflecting a 40% year-over-year increase, with revenues anticipated at $509.48 million, up 5.7% from the previous year.
Empirical research suggests that earnings estimate revisions are closely linked to stock price movements. For Kennametal, the consensus EPS estimate has been revised up by 3.4% over the past month. This positive trend in earnings estimates could lead to further price increases for KMT.
Kennametal is part of the Zacks Manufacturing – Tools & Related Products industry, alongside Stanley Black & Decker (SWK). SWK’s shares increased by 0.6% to $82.9 in the last session, having returned 11.1% over the past month. Its consensus EPS estimate for the next report rose by 3.6%, although this marks a 14.8% decrease from the previous year.
The recent 8.3% surge in Kennametal stock, on notable volume, signals a potential continuation of its upward trend. For us, this suggests looking at bullish options strategies in the coming weeks. The move appears to be driven by more than just short-term sentiment.
This rally is backed by real strength in the aerospace and defense markets, which we’ve seen gather steam since late 2025. Recent data from the Aerospace Industries Association showed a 4% increase in new commercial aircraft orders for the fourth quarter of 2025. This aligns with the easing supply-chain pressures and robust defense spending we have been tracking.
With an upcoming earnings report projecting a 40% year-over-year increase in earnings per share, implied volatility is likely to rise. This presents an opportunity to sell out-of-the-money put spreads to collect premium, capitalizing on the positive earnings estimate revisions. We are also seeing strength in the energy markets, which, after a volatile 2025, have shown consistent demand.
For those anticipating a significant beat on earnings, buying call options with expirations after the announcement could be a viable play. The 3.4% upward revision in the consensus earnings estimate over the last 30 days is a historically strong indicator of near-term price appreciation. This reflects a pattern we observed in several industrial stocks last year.
In contrast, we see a different picture with Stanley Black & Decker within the same sector. Its fundamentals appear weaker, making a pairs trade an interesting strategy to consider. This would involve taking a bullish position on Kennametal while taking a bearish one on Stanley Black & Decker.
Stanley Black & Decker is expected to report a 14.8% decline in year-over-year earnings, a significant red flag for us. Its exposure to the consumer and construction markets is a liability, especially as housing start data from December 2025 showed a slight cooling trend. This makes buying put options on SWK an attractive hedge against our KMT position.
