Across the board, industries are resuming contact-intensive activities with progress on the coronavirus vaccination front. They are also investing heavily in their IT infrastructure and automation to enhance their supply network visibility. Manufacturing-intensive companies’ recovery is evident in the iShares U.S. Industrials ETF’s (IYJ) 26.5% returns over the past six months. In fact, the U.S.’ industrial capacity utilization was 73.8% in February, up from 64.2% in April 2020.
Spending increases due to an improving labor market and rising personal disposable income are driving higher aggregate demand. As noted by Aneta Markowska, chief economist at Jefferies, personal consumption expenditure (PCE) is expected to grow 7% this year. Also, the employment rate in the United States increased to 57.6% in February 2021 from 57.5% in January. This, coupled with the recent passage of a $1.9 trillion COVID-19 rescue plan, is contributing to accelerating economic activity. Rising bond yields also point to a solid economic recovery.
We believe that fundamentally sound companies in the manufacturing space, such as The Timken Company (TKR), Hillenbrand, Inc. (HI), and Mueller Industries, Inc. (MLI) could witness strong momentum driven by the economic recovery.
The Timken Company (TKR)
TKR designs and manufactures a growing portfolio of engineered bearings and power transmission products. The company operates through two segments: Mobile Industries and Process Industries. Its portfolio features various brands, including Timken, Fafnir, Philadelphia Gear, Drives, Cone Drive, Rollon, Lovejoy and Groeneveld.
Last month, TKR earned a spot among the World’s Most Ethical Companies for the 11th time. The recognition reflects TKR’s ethical credo and its commitment to advancing sustainability efforts and promoting leadership throughout the company.
TKR demonstrated its resiliency and ability to generate strong financial performance in the fourth quarter despite challenging markets. The company’s net sales for process industries have increased 1.5% year-over-year to $458 million in the fourth quarter, ended December 31. Its operating profit has risen 5.7% from the year-ago value to $98.80 million, while its adjusted net income has improved slightly to $65 million over the same period. Last year TKR witnessed a more than 50% increase in renewable energy revenue, making it the company’s single largest end-market sector, representing 12% of its 2020 full-year sales.
Analysts expect TKR’s revenues to grow 6.2% year-over-year to $980.21 million in the current quarter (ending March 31, 2021). A consensus EPS estimate of $1.21 for the first quarter represents a 9% improvement from the year-ago value. The company has an impressive earnings surprise history; it beat the Street’s EPS estimates in three of the trailing four quarters. The stock has gained 49.7% over the past six months.
TKR’s POWR Ratings reflect its strong growth prospects. 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.
TKR has an A grade for Momentum, and a B for Value, Quality, and Sentiment. It is currently ranked #4 of 46 stocks in the A-rated Industrial – Manufacturing industry.
In total, we rate TKR on eight different levels. Click here to see the additional POWR Ratings for TKR (Growth, and Stability).
Hillenbrand, Inc. (HI)
HI is a global diversified industrial company with businesses that serve a wide variety of industries worldwide. The company operates through three segments: Advanced Process Solutions, Molding Technology Solutions, and Batesville.
On March 11, HI completed the sale of Abel Pumps, L.P., and certain of its affiliates, to IDEX Corporation (IEX). This generated cash proceeds of approximately $103.5 million. The divestiture is expected to be an important step in the company’s strategy to streamline its portfolio, increase financial flexibility, and accelerate its growth. The proceeds from the sale will help HI to reduce its leverage and invest in organic growth opportunities.
HI’s net revenues have increased 22.2% year-over-year to $692.50 million in the first quarter, ended December 31, driven by strong COVID-19 related demand at Batesville and 50 additional days of revenue from Molding Technology Solutions. The company’s adjusted ebitda has risen 50.2% from its year-ago value to $138 million, driven by the addition of MTS, strong sales and margin performance at Batesville, and pricing and productivity improvements. Its adjusted EPS has improved 28% to $0.96 over the same period, driven primarily by lower costs related to the MTS acquisition.
Analysts expect HI to report EPS of $0.91 in the current quarter (ending March 31, 2021), indicating a year-over-year increase of 71.7%. The consensus revenue estimate of $707.05 million for the second quarter represents a 9% improvement from its year-ago value. Also, the company beat the Street’s earnings estimates in each of the trailing four quarters. The stock has gained 68.2% over the past six months.
It’s no surprise that HI has an overall rating of A, which translates to Strong Buy in our POWR Ratings system. HI has a B grade for Sentiment, Growth, and Value. In the same industry, it is ranked #8.
Beyond what we’ve stated above, we also have given HI grades for Momentum, Stability, and Quality. Get all of HI’s ratings here.
Mueller Industries, Inc. (MLI)
MLI is an industrial corporation that manufactures and markets copper, brass, aluminum, and plastic products worldwide. The company operates through three segments: Piping Systems, Industrial Metals and Climate. It serves markets including air, water, oil and gas distribution, climate comfort, food preservation, energy transmission, medical, aerospace, and automotive.
Last December, MLI agreed to purchase the Hart & Cooley Flexible Duct business. This acquisition is expected to expand the company’s footprint in the air quality and climate control systems markets, which is integral to MLI’s growth strategy.
MLI’s net sales have increased 24.3% year-over-year to $675.85 million in its fiscal fourth quarter, ended December 26, 2020. Its sales growth was largely driven by higher copper prices. Its operating income has risen 46.2% from its year-ago value to $65 million, while its EPS has improved 28% to $0.64 over the same period.
A consensus revenue estimate of $2.78 billion for the current year (ending December 26, 2021) represents a 16.1% improvement from the year-ago quarter. Its EPS of $3.15 for the current year is expected to grow by 10.9%. The stock has gained 52.8% over the past six months.
MLI’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to Strong Buy in our rating system. MLI has a B grade for Momentum, Sentiment, and Quality. It is currently ranked #5 of 46 stocks in the same A-rated industry.
Click here to see the additional POWR Ratings for MLI (Value, Stability, and Growth).
The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
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TKR shares were trading at $81.05 per share on Thursday morning, down $0.12 (-0.15%). Year-to-date, TKR has gained 5.19%, versus a 7.13% 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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