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4 Metal Fabrication Stocks Poised to Escape Industry Woes
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The Zacks Metal Products - Procurement and Fabrication industry’s supply chain and customer demand was impacted by the coronavirus pandemic in the earlier part of the year. However, the industry is slowly regaining its lost ground as reopening of businesses has led to a pickup in orders lately. It remains to be seen whether this momentum will sustain considering that the pandemic shows no sign of abating.
Meanwhile, the industry players including Timken Company (TKR - Free Report) , Worthington Industries, Inc. (WOR - Free Report) , TriMas Corporation (TRS - Free Report) and AmpcoPittsburgh Corporation (AP - Free Report) are banking on prudent cost management and investment in automation to increase efficiency.
About the Industry
The Zacks Metal Products - Procurement and Fabrication industry primarily comprises metal processing and fabrication services providers. Most of the industry participants are engaged in conversion, manufacturing and fabrication of metal into end products. Important fabricated metal processes include forging, stamping, bending, forming, and machining. Meanwhile, other processes such as welding and assembling are utilized to join separate parts together.
The industry players serve a wide array of markets including construction, mining, aerospace and defense, automotive, agriculture, oil and gas, electronics/electrical components, industrial equipment and general consumer.
What’s Shaping the Future of Metal Products - Procurement and Fabrication industry
COVID-19 Impact Looms Large: In the earlier part of this year, the coronavirus pandemic wreaked havoc on the industry’s supply chain and weakened demand in several of its end markets including transportation, mining and industrial. Several customers worldwide had to temporarily idle their manufacturing facilities amid the restrictions imposed by the respective governments. Consequently, the industry participants had to adjust production schedules in response to weak demand. Overall production has gone down 8.5% in the 12-months ended September 2020. Resurgence of coronavirus cases remains a concern and could lead to suspension of manufacturing operations and supply disruptions again.
Improving Numbers Indicate Recovery: Per the Fed’s latest industrial production report, aggregate production of fabricated metal products in the United States improved 12.3% in third-quarter 2020 following a contraction of 38.3% in the second quarter and 2.8% decline in the first quarter of 2020. Further, the Institute for Supply Management’s latest Manufacturing Report indicates that the fabricated metal products industry has been witnessing improvement in overall business conditions over the July-September period as evident from the increase in order levels and production after a contraction for four straight months. However, it remains to be seen whether this trend will sustain.
Cost Cuts to Sustain Margins: In the wake of the pandemic, the industry players have been making every effort to bolster financial condition, conserve cash and optimize profitability. These companies are implementing cost reduction actions, which include limiting discretionary spending, temporarily furloughing employees or minimizing work hours, reducing short-term executive pay, delaying salary increases, scaling back advertising spend, eliminating non-essential travel, delaying hiring and deferring certain discretionary capital expenditures. The industry has also been facing high raw material costs lately. These initiatives are likely to help the industry maintain margins.
Automation, Growth in End-Markets to act as Catalysts: The industry’s customer-focused approach to provide cost-effective technical solutions, automation to increase efficiency and lower labor costs, and development of new products and innovative products will help drive growth in the days ahead. According to a report by Transparency Market Research, the global metal fabrication market is anticipated to see a CAGR 3.5% to $23.05 billion to during the 2019-2027 period. Given that fabricated metals are utilized in diversified end-markets, effects of cyclic nature of the metal fabrication market are mitigated. Growth in end-use sectors such as aerospace and automotive is anticipated to drive the metal fabrication market over the next few years. Developing countries hold promise courtesy of rapid industrialization, which will create demand.
Zacks Industry Rank Indicates Dim Prospects
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates gloomy prospects in the near term. The Zacks Metal Products - Procurement and Fabrication industry, which is a 12-stock group within the broader Industrial Products Sector, currently carries a Zacks Industry Rank #175, which places it at the bottom 31% of 256 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group’s earnings growth potential. Since the beginning of this year, the industry’s earnings estimates for the current year has plunged 90%.
Despite the bleak near-term prospects, we will present a few Metal Products - Procurement and Fabrication stocks that one can retain given their growth prospects. But it’s worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Lags S&P 500 and Sector on Shareholder Returns
The Zacks Metal Products - Procurement and Fabrication industry has underperformed its own sector and S&P 500 composite over the past year. Over this period, the industry has declined 1.2% against the sector’s growth of 15.4%. Meanwhile, the Zacks S&P 500 composite has rallied 15.2%.
One-Year Price Performance
Industry’s Current Valuation
On the basis of forward 12-month EV/EBITDA ratio, which is a commonly used multiple for valuing Metal Products - Procurement and Fabrication companies, we see that the industry is currently trading at 7.46 compared with the S&P 500’s 14.24 and the Industrial Products sector’s forward 12-month EV/EBITDA of 19.43. This is shown in the charts below.
Enterprise Value/EBITDA (EV/EBITDA) F12M Ratio
Enterprise Value/EBITDA (EV/EBITDA) F12M Ratio
Over the last five years, the industry has traded as high as 20.86 and as low as 5.01, with the median being at 8.00.
4 Metal Products - Procurement and Fabrication Stocks to Keep an Eye On
Worthington Industries: This Columbus, OH-based metals manufacturing company, focuses on value-added steel processing and manufactured metal products in the United States, Austria, Canada, Mexico, Poland, and Portugal. The company is poised well for growth through its three-tiered strategy — Transformation, Innovation and Acquisitions. The transformation aspect concentrates on making its businesses more capital efficient and profitable. The innovation angle, which is focused on new product development and acquisitions to augment product offerings, adding higher margin businesses, helps accelerate growth. The company is also building on its capabilities in automation, analytics and advanced technologies that will provide a competitive edge. Moreover, the company’s proactive steps to cut costs in the wake of the uncertain environment will bolster margins.
The Zacks Consensus Estimate for the company’s current year earnings indicates a year-over-year growth of 19%. The estimate has moved up 44% over the past 90 days. The company has a trailing four-quarter earnings surprise of 14.6%, on average. The stock has gained 120% in the past six months. The company currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: WOR
AmpcoPittsburgh Corporation (AP - Free Report) : This Carnegie, PA-based company manufactures and sells custom designed engineering products to commercial and industrial users in the United States and internationally.
Over the past two years, the company has restructured its portfolio and divested underperforming and non-core businesses. It has also undertaken cost reduction measures and production efficiency improvements. These efforts helped the company return to profitability in the fourth quarter of 2019 and will continue to deliver cost savings going forward. It will benefit from its efforts to diversify product offerings in open-die forged products. Focus on increasing automated processes and modernization will also lead to higher margins. The company continues to consolidate manufacturing footprint through asset upgrades, which in turn reduces overhead, labor, and working capital further.
The company has a trailing four-quarter earnings surprise of 119%, on average. The Zacks Consensus Estimate for earnings for fiscal 2020 indicates year-over-year growth of 35%. Over the past 90 days, the Zacks Consensus Estimate has been revised from a loss of 59 cents to current estimate of an earnings of 50 cents. The company, which carries a Zacks Rank #2 (Buy), has gained 21% over the past six months.
Price and Consensus: AP
Trimas: Bloomfield Hills, MI-based TriMas is a diversified global designer, manufacturer and distributor of engineered and applied products that serves a variety of industrial, commercial and consumer end markets worldwide. The company continues to gain on its TriMas Business Model, which is focused on improving management and performance of its businesses. Its innovative solutions through product, process or service, and extensive resources will help enhance business performance. TriMas also has a strong pipeline of both product and process innovation that will not only sustain long-term growth but also position its businesses to capitalize on market opportunities and minimize market disruptions. In the wake of the uncertain market conditions amid the coronavirus pandemic, the company is taking steps to lower costs, which will aid margins.
The Zacks Consensus Estimate for the company’s current year earnings indicates year-over-year growth of 1.4%. The estimate has moved up 14% over the past 90 days. The company has a trailing four-quarter earnings surprise of 2.9%, on average. The stock has gained 12% in the past six months. The company currently carries a Zacks Rank #3 (Hold).
Price and Consensus: TRS
Timken: North Canton, OH-based Timken is a global manufacturer of bearings, friction management products, and mechanical power transmission components. The company will gain on its strategic acquisitions to broaden its portfolio and capabilities across diverse markets, with a focus on bearings, adjacent power transmission products, and related services. The company’s diversity in terms of end market, customer and geography, product innovation, and engineering expertise provide it with a competitive edge. Cost-reduction actions will also drive margins. The company has enhanced presence in the renewable space to support growth beyond 2020. The sector is anticipated to become a significant part of its portfolio in the future.
The Zacks Consensus Estimate for the company’s current year earnings has moved up 37% over the past 90 days. The company has a trailing four-quarter earnings surprise of 49.5%, on average. The company has an estimated long-term earnings growth of 2.6%. The stock has appreciated 86% in the past six months. The company currently carries a Zacks Rank #3.
Price and Consensus: TKR
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4 Metal Fabrication Stocks Poised to Escape Industry Woes
The Zacks Metal Products - Procurement and Fabrication industry’s supply chain and customer demand was impacted by the coronavirus pandemic in the earlier part of the year. However, the industry is slowly regaining its lost ground as reopening of businesses has led to a pickup in orders lately. It remains to be seen whether this momentum will sustain considering that the pandemic shows no sign of abating.
Meanwhile, the industry players including Timken Company (TKR - Free Report) , Worthington Industries, Inc. (WOR - Free Report) , TriMas Corporation (TRS - Free Report) and AmpcoPittsburgh Corporation (AP - Free Report) are banking on prudent cost management and investment in automation to increase efficiency.
About the Industry
The Zacks Metal Products - Procurement and Fabrication industry primarily comprises metal processing and fabrication services providers. Most of the industry participants are engaged in conversion, manufacturing and fabrication of metal into end products. Important fabricated metal processes include forging, stamping, bending, forming, and machining. Meanwhile, other processes such as welding and assembling are utilized to join separate parts together.
The industry players serve a wide array of markets including construction, mining, aerospace and defense, automotive, agriculture, oil and gas, electronics/electrical components, industrial equipment and general consumer.
What’s Shaping the Future of Metal Products - Procurement and Fabrication industry
COVID-19 Impact Looms Large: In the earlier part of this year, the coronavirus pandemic wreaked havoc on the industry’s supply chain and weakened demand in several of its end markets including transportation, mining and industrial. Several customers worldwide had to temporarily idle their manufacturing facilities amid the restrictions imposed by the respective governments. Consequently, the industry participants had to adjust production schedules in response to weak demand. Overall production has gone down 8.5% in the 12-months ended September 2020. Resurgence of coronavirus cases remains a concern and could lead to suspension of manufacturing operations and supply disruptions again.
Improving Numbers Indicate Recovery: Per the Fed’s latest industrial production report, aggregate production of fabricated metal products in the United States improved 12.3% in third-quarter 2020 following a contraction of 38.3% in the second quarter and 2.8% decline in the first quarter of 2020. Further, the Institute for Supply Management’s latest Manufacturing Report indicates that the fabricated metal products industry has been witnessing improvement in overall business conditions over the July-September period as evident from the increase in order levels and production after a contraction for four straight months. However, it remains to be seen whether this trend will sustain.
Cost Cuts to Sustain Margins: In the wake of the pandemic, the industry players have been making every effort to bolster financial condition, conserve cash and optimize profitability. These companies are implementing cost reduction actions, which include limiting discretionary spending, temporarily furloughing employees or minimizing work hours, reducing short-term executive pay, delaying salary increases, scaling back advertising spend, eliminating non-essential travel, delaying hiring and deferring certain discretionary capital expenditures. The industry has also been facing high raw material costs lately. These initiatives are likely to help the industry maintain margins.
Automation, Growth in End-Markets to act as Catalysts: The industry’s customer-focused approach to provide cost-effective technical solutions, automation to increase efficiency and lower labor costs, and development of new products and innovative products will help drive growth in the days ahead. According to a report by Transparency Market Research, the global metal fabrication market is anticipated to see a CAGR 3.5% to $23.05 billion to during the 2019-2027 period. Given that fabricated metals are utilized in diversified end-markets, effects of cyclic nature of the metal fabrication market are mitigated. Growth in end-use sectors such as aerospace and automotive is anticipated to drive the metal fabrication market over the next few years. Developing countries hold promise courtesy of rapid industrialization, which will create demand.
Zacks Industry Rank Indicates Dim Prospects
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates gloomy prospects in the near term. The Zacks Metal Products - Procurement and Fabrication industry, which is a 12-stock group within the broader Industrial Products Sector, currently carries a Zacks Industry Rank #175, which places it at the bottom 31% of 256 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group’s earnings growth potential. Since the beginning of this year, the industry’s earnings estimates for the current year has plunged 90%.
Despite the bleak near-term prospects, we will present a few Metal Products - Procurement and Fabrication stocks that one can retain given their growth prospects. But it’s worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Lags S&P 500 and Sector on Shareholder Returns
The Zacks Metal Products - Procurement and Fabrication industry has underperformed its own sector and S&P 500 composite over the past year. Over this period, the industry has declined 1.2% against the sector’s growth of 15.4%. Meanwhile, the Zacks S&P 500 composite has rallied 15.2%.
One-Year Price Performance
Industry’s Current Valuation
On the basis of forward 12-month EV/EBITDA ratio, which is a commonly used multiple for valuing Metal Products - Procurement and Fabrication companies, we see that the industry is currently trading at 7.46 compared with the S&P 500’s 14.24 and the Industrial Products sector’s forward 12-month EV/EBITDA of 19.43. This is shown in the charts below.
Enterprise Value/EBITDA (EV/EBITDA) F12M Ratio
Enterprise Value/EBITDA (EV/EBITDA) F12M Ratio
Over the last five years, the industry has traded as high as 20.86 and as low as 5.01, with the median being at 8.00.
4 Metal Products - Procurement and Fabrication Stocks to Keep an Eye On
Worthington Industries: This Columbus, OH-based metals manufacturing company, focuses on value-added steel processing and manufactured metal products in the United States, Austria, Canada, Mexico, Poland, and Portugal. The company is poised well for growth through its three-tiered strategy — Transformation, Innovation and Acquisitions. The transformation aspect concentrates on making its businesses more capital efficient and profitable. The innovation angle, which is focused on new product development and acquisitions to augment product offerings, adding higher margin businesses, helps accelerate growth. The company is also building on its capabilities in automation, analytics and advanced technologies that will provide a competitive edge. Moreover, the company’s proactive steps to cut costs in the wake of the uncertain environment will bolster margins.
The Zacks Consensus Estimate for the company’s current year earnings indicates a year-over-year growth of 19%. The estimate has moved up 44% over the past 90 days. The company has a trailing four-quarter earnings surprise of 14.6%, on average. The stock has gained 120% in the past six months. The company currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: WOR
AmpcoPittsburgh Corporation (AP - Free Report) : This Carnegie, PA-based company manufactures and sells custom designed engineering products to commercial and industrial users in the United States and internationally.
Over the past two years, the company has restructured its portfolio and divested underperforming and non-core businesses. It has also undertaken cost reduction measures and production efficiency improvements. These efforts helped the company return to profitability in the fourth quarter of 2019 and will continue to deliver cost savings going forward. It will benefit from its efforts to diversify product offerings in open-die forged products. Focus on increasing automated processes and modernization will also lead to higher margins. The company continues to consolidate manufacturing footprint through asset upgrades, which in turn reduces overhead, labor, and working capital further.
The company has a trailing four-quarter earnings surprise of 119%, on average. The Zacks Consensus Estimate for earnings for fiscal 2020 indicates year-over-year growth of 35%. Over the past 90 days, the Zacks Consensus Estimate has been revised from a loss of 59 cents to current estimate of an earnings of 50 cents. The company, which carries a Zacks Rank #2 (Buy), has gained 21% over the past six months.
Price and Consensus: AP
Trimas: Bloomfield Hills, MI-based TriMas is a diversified global designer, manufacturer and distributor of engineered and applied products that serves a variety of industrial, commercial and consumer end markets worldwide. The company continues to gain on its TriMas Business Model, which is focused on improving management and performance of its businesses. Its innovative solutions through product, process or service, and extensive resources will help enhance business performance. TriMas also has a strong pipeline of both product and process innovation that will not only sustain long-term growth but also position its businesses to capitalize on market opportunities and minimize market disruptions. In the wake of the uncertain market conditions amid the coronavirus pandemic, the company is taking steps to lower costs, which will aid margins.
The Zacks Consensus Estimate for the company’s current year earnings indicates year-over-year growth of 1.4%. The estimate has moved up 14% over the past 90 days. The company has a trailing four-quarter earnings surprise of 2.9%, on average. The stock has gained 12% in the past six months. The company currently carries a Zacks Rank #3 (Hold).
Price and Consensus: TRS
Timken: North Canton, OH-based Timken is a global manufacturer of bearings, friction management products, and mechanical power transmission components. The company will gain on its strategic acquisitions to broaden its portfolio and capabilities across diverse markets, with a focus on bearings, adjacent power transmission products, and related services. The company’s diversity in terms of end market, customer and geography, product innovation, and engineering expertise provide it with a competitive edge. Cost-reduction actions will also drive margins. The company has enhanced presence in the renewable space to support growth beyond 2020. The sector is anticipated to become a significant part of its portfolio in the future.
The Zacks Consensus Estimate for the company’s current year earnings has moved up 37% over the past 90 days. The company has a trailing four-quarter earnings surprise of 49.5%, on average. The company has an estimated long-term earnings growth of 2.6%. The stock has appreciated 86% in the past six months. The company currently carries a Zacks Rank #3.
Price and Consensus: TKR
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The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.
Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +50%, +83% and +164% in as little as 2 months. The stocks in this report could perform even better.
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