Kennametal's (KMT) price/cost equation could peak in Q3 and currently remains a modest headwind for the future, Morgan Stanley said in a Monday research report.

The brokerage said it now expects 2027 adjusted EPS of $4.85 on revenue of $3.39 billion compared with the prior forecast of $2.86 and $2.52 billion, respectively.

While the raw material timing benefit due to a surge in Tungsten prices resulted in temporary margin gains, EPS is likely to be in a contraction mode over the next 12 months as the unwind of the benefit offsets any tailwind from cyclical recovery in volumes, according to the note.

The brokerage said it downgraded the stock to underweight from equalweight and cut its price target to $27 per share from $31.

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