Hillenbrand Inc. (HI): Insider Buys Signal Undervaluation Amid Strategic Shifts

The market's aversion to cyclical industrials has created a rare opportunity in Hillenbrand Inc. (NYSE:HI), where $1.57 million in recent insider purchases and a P/E ratio of 8.86 suggest a disconnect between short-term volatility and long-term value. As the company executes its strategic pivot—selling non-core assets and focusing on high-margin businesses—key executives are doubling down, signaling confidence in a turnaround. For contrarian investors, HI presents a compelling risk-reward proposition in an overlooked sector.

Insider Buying: A Contrarian Signal

Over the past year, Hillenbrand insiders have purchased $1.57 million of shares, with CFO Robert VanHimbergen leading the way with a $512,000 stake at $45.23—a price above the current $44.50 valuation. Notably, no insider sales have been reported, and insider ownership stands at 1.1% of the company, aligning management incentives with shareholders. These purchases occurred despite the stock's 59% decline over 12 months, making them a stark contrarian indicator.

Strategic Shifts: Divesting for Focus

The sale of Milacron, a majority stake divested for $287 million, marks Hillenbrand's commitment to simplifying its portfolio. Proceeds will reduce net debt to $1.7 billion, lowering its debt-to-EBITDA ratio to 3.4x—a critical step toward financial flexibility. With Milacron's cyclical plastics business now behind it, Hillenbrand is laser-focused on higher-margin segments like food processing equipment and funeral services, which offer secular growth and resilience to economic cycles.

Valuation: A Bargain at 8.86x Earnings

Hillenbrand trades at a P/E of 8.86, far below the industrial sector average of 15.2x, despite its strong balance sheet and asset-light business model. Analysts project a $36.50 price target, implying an 82.59% upside from current levels. Even after accounting for Q1 2025's 9% revenue decline to $707 million, the company's adjusted EPS guidance of $2.45–$2.80 reflects confidence in its streamlined operations.

Resilience to Tariffs and Volatility

While tariffs on steel and aluminum have pressured margins, Hillenbrand's operational efficiencies—including localized manufacturing and supplier diversification—have mitigated costs. The company's funeral service division, which accounts for 60% of profits, is inherently recession-resistant, offering steady cash flows. This dual-pronged strategy positions HI to outperform peers in a slowing economy.

Investment Thesis: Buy the Dip

Despite HI's recent underperformance—35% YTD losses—the combination of insider confidence, asset sales, and a debt-reduction roadmap makes this a prime contrarian play. The stock's $36.50 target (82.59% upside) aligns with a conservative valuation of its core businesses, while its dividend yield of 2.4% adds downside protection.

Risks to Consider

• Execution risk: The Milacron sale's proceeds must meaningfully improve Hillenbrand's capital allocation.
• Tariff escalation: Prolonged trade tensions could strain margins in its food equipment division.
• Macroeconomic slowdown: Funeral services, while stable, may see reduced demand in severe downturns.

Conclusion: A Hidden Gem in Industrials

Hillenbrand's insider activity and strategic discipline underscore its undervalued status. For investors willing to look past short-term volatility, HI offers a 71–82% upside potential in a sector ripe for recovery. With a P/E of 8.86 and a balance sheet strengthened by divestitures, this is a rare opportunity to buy a high-quality industrial equity at a deep discount.

Recommendation: Accumulate shares of HI on dips below $40, with a target price of $36.50 reflecting near-term upside and a long-term horizon to capture the benefits of its strategic realignment.