The industrial sector was hit hard by the COVID-19 pandemic last year because of business lockdowns and social distancing requirements. However, the easing of restrictions this year on the back of widespread vaccinations is facilitating an impressive recovery by the industrial sector. Furthermore, President Biden’s emphasis on industrial growth in his $2 trillion-plus infrastructure spending proposal is expected to further invigorate the sector.
Total industrial production in the United States increased 16.5% year-over-year in April 2021. If Biden’s American Jobs Plan is passed, aerospace, capital goods, and industrial technology should witness solid growth. Consequently, the sector has been benefiting from favorable investor sentiment, as evidenced by Vanguard Industrial ETF’s (VIS) 15.8% year-to-date returns compared to SPDR S&P 500 ETF Trust’s (SPY) 10.2% gains.
The industrial sector’s growth is highly correlated with economic growth. So, as the economy keeps growing, industrial companies should witness solid business growth. The global market for industrial machinery is expected to grow at a 5% CAGR over the next six years to hit $794 billion by 2027. Given this solid backdrop, we think the recent price dip in Eaton Corporation plc (ETN), Crane Co. (CR), and Atkore Inc. (ATKR) provides a good buying opportunity.
Eaton Corporation plc (ETN)
Based in Dublin, Ireland, ETN is a power management company that has business operations in more than 175 countries. It operates in various segments: Electrical Americas and Electrical Global, Hydraulics, Aerospace, Vehicle, and eMobility.
This month, ETN’s eMobility business received a contract to supply a 24-to-12-volt DC-DC converter for use in a commercial heavy-duty battery electric vehicle (BEV) that will power accessories, such as antilock brakes and lighting. This supply to the North American and China markets, later this year, should widen ETN’s market base and be an added source of revenue for it.
ETN’s total operating profit increased 9.6% year-over-year to $831 million in the first quarter, ended March 31, 2021. Its net income grew 4.6% from its year-ago value to $458 million, while its adjusted operating cash flow increased 42% year-over-year to $260 million over this period. Its EPS rose 6.5% year-over-year to $1.14.
A $1.53 consensus EPS estimate for the quarter ending June 2021 represents an 118.6% improvement year-over-year. The $18.97 billion consensus revenue estimate for the current year represents a 6.2% increase from the same period last year.
The stock has gained 84.4% over the past year and closed yesterday’s trading session at $144.33. It is currently trading 3.4% below its $149.38, 52-week high.
ETN’s POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
ETN is also rated an A in Momentum, and a B in Quality and Growth. Within the A-rated Industrial – Machinery group, it is ranked #21 of 86 stocks.
To see additional POWR Ratings for Sentiment, Value and Stability for ETN, Click here.
Crane Co. (CR)
CR is a diversified manufacturer of highly engineered industrial products. The company has four business segments: Fluid Handling, Payment & Merchandising Technologies, Aerospace & Electronics and Engineered Materials. It engages in the chemicals, oil & gas, power, automated payment solutions, banknote design and production, aerospace & defense markets, along with a wide range of general industrial and consumer related end markets.
In the first quarter, ended March 31, CR’s net sales increased 4.5% year-over-year to $833.5 million. Its operating profit increased 65.2% from its year-ago value to $146.4 million, while its net income grew 72.6% year-over-year to $108.4 million. Its EPS came in at $1.84 for this period, compared to an EPS of $1.05 in the prior-year quarter.
Analysts expect CR’s revenue for the current quarter, ending June 30, to be $777.31 million, representing 14.2% year-over-year growth. The company’s EPS is likely to increase 50.5% year-over-year to $5.78 for the current year.
Over the past year, CR has gained 81.8%. It closed yesterday’s trading session at $95.41 and is currently trading 4.5% below its $99.93, 52-week high.
It is no surprise that CR has an overall A grade, which equates to Strong Buy in our proprietary ratings system. It has a B grade for Quality, Stability and Growth. In the A-rated Industrial – Machinery industry, it is ranked #1.
In total, we rate CR on eight different levels. Beyond what we’ve stated above, we have also given CR grades for Sentiment, Value and Momentum. Get all the CR ratings here.
Atkore Inc. (ATKR)
Founded in 1959, ATKR deals in electrical raceway products, and mechanical products and solutions (MP&S). The company offers products such as electrical conduits and fittings, metal framing and fittings, mechanical pipes, modular support structures, etc. It offers its products under the sub-brands: Allied Tube & Conduit, AFC Cable Systems, Heritage Plastics, Unistrut, Power-Strut, Cope, Calpipe brands, etc.
In February, ATKR acquired FRE Composites Group, a leading manufacturer of fiberglass conduit solutions for the electrical, transportation, telecommunications and infrastructure markets. With this acquisition, ATKR’s conduit product portfolio should expand and enable it to better serve customers by offering more options to meet their demands.
During the second quarter, ended March 26, ATKR’s net sales increased 40.4% year-over-year to $639.54 million. Its gross profit increased 82.3% year-over-year to $239.85 million, while its net income rose 218.8% from its year-ago value to $124.92 million. The company’s adjusted EBITDA increased 122.2% year-over-year to $193.37 million, while its EPS grew 222.5% from the prior-year quarter to $2.58.
ATKR is expected to see 46.1% revenue growth year-over-year to $2.58 billion for the current year. Its EPS is estimated to increase 358.2% from its year-ago value to $3.07 in the current quarter, ending June 2021.
Over the past year, ATKR’s stock has gained 214.1%. The stock closed yesterday’s trading session at $79.08 and is currently trading 12.2% below its 52-week high of $90.08.
The stock has an overall A rating, which equates to Strong Buy in our POWR Ratings system. ATKR has an A grade for Momentum, Growth and Quality. Among the 42 stocks in the Industrial – Metals industry, it is ranked #1.
Click here to see the additional POWR Ratings for ATKR (Sentiment, Value and Stability).
Note that ATKR is one of the current stocks in Jaimini Desai’s POWR Growth portfolio. Learn more here.
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ETN shares were trading at $142.89 per share on Wednesday afternoon, down $1.44 (-1.00%). Year-to-date, ETN has gained 20.22%, versus a 9.93% rise in the benchmark S&P 500 index during the same period.
About the Author: Samiksha Agarwal
Samiksha Agarwal has always had a keen interest in financial markets. This has led her to a career as a financial journalist. Through her extensive knowledge of fundamental analysis, her goal is to help investors identify untapped investment opportunities in the stock market. More...
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