A faster-than-expected economic recovery from the depths of the COVID-19 pandemic-induced recession, coupled with the resumption of construction activities and growing demand from the manufacturing sector, are contributing to the industrial sector’s rebound. According to Federal Reserve data, total industrial production in August rose 5.9% year-over-year.
Investor optimism surrounding the industrial sector’s prospects is evidenced by the Industrial Select Sector SPDR Fund’s (XLI) 26.9% returns over the past year. Furthermore, President Biden’s bipartisan infrastructure bill proposal, which is expected to be passed at the end of this month, should bolster the demand for industrial goods.
Given this backdrop, we think it could be wise to bet now on prominent industrial stocks Granite Construction Incorporated (GVA) and Heritage-Crystal Clean, Inc (HCCI). These stocks are expected to continue rallying in price due to their strong growth potential and stable financials.
Granite Construction Incorporated (GVA)
GVA is a diversified construction and construction materials company that serves the transportation, water infrastructure, and mineral exploration markets. The company, which is headquartered in Watsonville, Calif., operates under the transportation, water, specialty, and materials segments. It also offers solutions to water-related construction, aggregates, asphalt production, and complex projects, including mining, tunnel, and power projects.
In August, GVA received the $25.7 million DBB1 contract from the Tucson Airport Authority (TAA) as part of its Airfield Safety Enhancements (ASE) program. GVA’s manager Anthony Alfonso stated, “Securing this project allows our team to maintain focus on the airfield and provide best value to TAA on the ASE program, benefitting all stakeholders.”
GVA’s total revenue for the second quarter, ended June 30, 2021, increased 5.3% year-over-year to $964.17 million. Its gross profit grew 32.4% from its year-ago value to $116.95 million. The company’s operating income came in at $68.56 million for the quarter, versus a $2.15 million operating loss in the prior-year quarter. Also, its net income amounted to $55.75 million, compared to a $973,000 net loss in the second quarter of 2020. The company’s revenue and EBITDA have grown at CAGRs of 5.2% and 0.7%, respectively, over the past three years.
Analysts expect GVA’s revenue to increase 5.1% year-over-year to $3.91 billion in its fiscal year 2022. In addition, its EPS is expected to increase 139.6% in the current year. Also, the stock has gained more than 50% in price year-to-date and close to 115% over the past year.
GVA’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
The stock has an A grade for Growth. We’ve also graded GVA for Sentiment, Stability, Value, Quality, and Momentum. Click here to access all GVA’s ratings. GVA is ranked #17 of 88 stocks in the B-rated Industrial – Services industry.
Heritage-Crystal Clean, Inc (HCCI)
Incorporated in 2007, HCCI in Elgin, Ill., provides smart alternatives in the environmental service market, including parts cleaning, hazardous and non-hazardous containerized waste, used oil collection, wastewater vacuum, antifreeze recycling, and field services. The company operates through two segments: Environmental Services; and Oil Business. It also offers solutions to wastewater treatment plants and antifreeze recycling facilities.
During the second quarter, ended June 19, 2021, HCCI’s total revenues increased 47.5% year-over-year to $117.28 million. The company’s operating income came in at $20.62 million for the quarter, versus a $2.57 million operating loss in the prior-year quarter. Its net income amounted to $15.11 million, compared to a $2.66 million net loss in the second quarter of 2020. The company’s EPS came in at $0.64 versus an $0.11 loss per share in the prior-year period. In addition, HCCI’s revenue and EBITDA have grown at CAGRs of 4.9% and 22.6%, respectively, over the past three years.
HCCI’s revenue for its fiscal year 2022 is expected to be $488.62 million, representing 0.2% year-over-year growth. The company has an impressive earnings surprise history; it beat the consensus EPS in each of the trailing four quarters. Also, its EPS is expected to grow at 15% per annum over the next five years. HCCI’s stock price surged more than 105% over the past year.
HCCI’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to a Strong Buy in our proprietary rating system. Also, the stock has an A grade for Growth and Sentiment, and a B grade for Value.
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GVA shares were unchanged in premarket trading Wednesday. Year-to-date, GVA has gained 49.33%, versus a 17.01% rise in the benchmark S&P 500 index during the same period.
About the Author: Priyanka Mandal
Priyanka is a passionate investment analyst and financial journalist. After earning a master's degree in economics, her interest in financial markets motivated her to begin her career in investment research. More...
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