The United States is gradually climbing out of its pandemic-led recession. Industries are quickly adopting to a new way of doing business and trying to effectively engage with customers digitally. Industrial capacity utilization in the U.S. was 73.8% in February, up from 64.2% in April 2020. However, this metric is still short of pre-pandemic levels. Nevertheless, a current market rally by industrial stocks is evident in the Industrial Select Sector SPDR ETF’s (XLI) 27.4% returns over the past six months versus the S&P 500 Index’s 19.1% gains.
One major reason for this rally is the rise in inflation rate. The U.S.’ annual inflation rate increased to 1.7% in February of 2021 from 1.4% in January. One might argue that higher interest-rate yields, because of rising inflation, might reduce equity valuations because investors could rotate into fixed-income securities. But we think industrial stocks will nonetheless continue to rally and outperform the broader market because the underlying companies are generating more sales and their earnings are rising.
While the industrial sector’s recovery prospects have already attracted many investors to well-known industrial stocks, Mettler-Toledo International Inc. (MTD), ABB Ltd (ABB), and Altra Industrial Motion Corp. (AIMC) have yet to largely catch the market’s eye. So, we think these companies are well positioned to capitalize on the industrial sector’s recovery.
Mettler-Toledo International Inc. (MTD)
Based in Columbus, Ohio, MTD manufactures and supplies precision instruments and services worldwide. The company operates through five segments: U.S. Operations, Swiss Operations, Western European Operations, Chinese Operations, and Other. The company serves primarily life sciences and independent research organizations, food and beverage producers, food retailers, and electronics producers, among others.
This month, MTD completed the acquisition of PendoTECH for a $185 million initial payment. This acquisition is a strategic fit and expands the company’s offerings of various sensors—pressure sensors in particular. Also, MTD believes this business combination will create one of the most comprehensive sensor offerings in the bioprocess market.
MTD ended the quarter with impressive sales growth in all regions. The growth has been particularly strong in its Laboratory business and in China. The company’s net sales have increased 11.1% year-over-year to $937.99 million in the fourth quarter, ended December 31. Its adjusted operating profit has risen 14.3% from its year-ago value to $292.81 million, while its EPS has improved 15.2% to $9.03.
Analysts expect MTD to report an EPS of $5.61 in the current quarter (ending March 31, 2021), up 40.3% year-over-year. A consensus revenue estimate of $757.85 million for the current quarter represents a 16.7% improvement from the previous year. Furthermore, the company beat the Street’s EPS estimates in each of the trailing four quarters. The stock has gained 20.9% over the past six months.
MTD’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
MTD has a B grade for both Growth and Stability, and an A for Quality. It is currently ranked #5 of 181 stocks in the Medical – Devices & Equipment industry.
In total, we rate MTD on eight different levels. Click here to see the additional POWR Ratings for MTD (Momentum, Value and Sentiment).
ABB Ltd (ABB)
ABB is a leading global technology company that manufactures and sells electrification, industrial automation, and robotics and motion products. It serves primarily customers in utilities, industry and transport, and infrastructure sectors worldwide.
In February, ABB launched the new GoFa and SWIFTI cobot families to complement YuMi and Single Arm YuMi in its collaborative robot (cobot) portfolio. These robots are stronger, faster and more capable and are expected to accelerate the company’s expansion in high-growth segments, including electronics, healthcare, consumer goods, and logistics, among others. In January, ABB deployed an optical sensor on the SpaceX rocket that launched satellite Hugo from GHGSat to map methane emissions from space at 100 times higher resolution than any other sensors. The sensor should provide valuable insights that will enable governments and industries worldwide to meet their emission reduction targets in their efforts to global warming.
ABB’s revenues have increased 1.6% year-over-year to $7.18 billion in the fourth quarter ended December 31. Its orders have risen 1.7% from their year-ago value to $7.00 billion, while its operational ebitda has improved 16.2% to $825 million over the same period.
Analysts expect ABB’s revenues to rise 7.1% year-to-year to $27.92 billion in its fiscal year 2021,ending December 31. A consensus EPS estimate of $1.21 for the current year represents a 23.5% improvement from the year-ago quarter. The company has an impressive earnings surprise history; it surpassed the Street’s EPS estimates in each of the trailing four quarters. The stock has gained 18.4% over the past six months.
ABB’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system. ABB also has a Momentum rating of A along with Stability, Growth, and Quality ratings of B. Of the 88 stocks in the A-rated Industrial – Machinery industry, the stock is ranked #8.
Beyond what we’ve stated above, we also have given ABB grades for Sentiment and Value. Get all of ABB’s ratings here.
Altra Industrial Motion Corp. (AIMC)
AIMC is a leading industrial global manufacturer and supplier of highly engineered motion control, automation, power transmission, and engine braking systems and components. The company operates in two segments, Power Transmission Technologies (PTT) and Automation & Specialty (A&S).
AIMC ended last year with an exceptional fourth quarter marked by careful cost management, strong cash flow generation and significant progress in de-leveraging its balance sheet. The company generated $263.50 million in Non-GAAP Adjusted free cash flow, which allowed it to pay down $160 million of debt in 2020 and exit the year with a Net Debt to Non-GAAP Adjusted EBITDA leverage below 3.2x.
Moreover, by leveraging its market position, diversifying its portfolio and seeing demand improvements in several markets, AIMC generated impressive fourth-quarter revenue. Its net sales have increased 2.6% year-over-year to $453.20 million in the fourth quarter ended December 31. Its adjusted ebitda has risen 7.5% from its year-ago value to $96.10 million, while its adjusted EPS has improved 15.2% to $0.76 over the same period.
A consensus revenue estimate of $460.35 million for the current quarter (ending March 31, 2021) indicates a 6% improvement from the year-ago value. Its EPS for the first quarter is expected to grow 15.4% year-over-year. Also, the company beat the Street’s earnings estimates in each of the trailing four quarters. The stock has gained 45.7% over the past six months.
It’s no surprise that AIMC has an overall A rating, which translates to Strong Buy in our POWR Ratings system. AIMC has a B grade for Quality, Growth, and Sentiment, and an A for Momentum. In the B-rated Industrial – Equipment industry, it is ranked #13 of 90 stocks.
Click here to see the additional POWR Ratings for AIMC (Value and Stability).
The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
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MTD shares were trading at $1,170.79 per share on Tuesday morning, up $0.20 (+0.02%). Year-to-date, MTD has gained 2.73%, versus a 5.79% rise in the benchmark S&P 500 index during the same period.
About the Author: Rishab Dugar
Rishab is a financial journalist and investment analyst. His investment approach is to focus on quality stocks, trading at low prices, with business models that he readily understands. More...
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