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Analyst Blog

On Sep 18, we reiterated our Neutral recommendation on Lincoln Electric Holdings Inc. (LECO - Analyst Report), manufacturer and reseller of welding and cutting products.

Why Reiterated?

Lincoln Electric’s second-quarter 2013 total revenue slipped 2% year over year to $727 million, but earnings improved 12% to 91 cents per share. Total volume dipped 5%, despite 8% higher volumes in South America on rising demand and 2% higher volumes in Harris Products Group on international expansion.
Despite softer volumes as a result of softening demand in both the domestic and international markets, Lincoln continues to effectively drive margins. This is possible through enhanced product mix, optimizing manufacturing footprint and focusing on cost. The momentum is expected to continue aided by new product introductions and prudent cost management.

Lincoln Electric has a strong balance sheet with a cash position of $256 million and a debt-to-capitalization ratio of as low as 1.1%. The company continues to allocate capital between its acquisition programs and returning cash to shareholders. We expect Lincoln Electric will opt for further acquisitions, share buybacks and dividend increases.

The company is well positioned to take advantage of the expected long-term growth in its key global markets including power generation, offshore drilling, pipelines and automotive sectors.

However, around 32% of Lincoln Electric’s revenues are generated from Europe and Asia. We remain cautious due to Europe's persistent debt problems and the continuing softness in the construction and related machinery markets in China.

Other Stocks to Consider

Other players that are worth a mention in the industry are Gorman-Rupp Co. (GRC - Snapshot Report), with a Zacks Rank #1 (Strong Buy), and Actuant Corporation (ATU - Analyst Report) and Sandvik AB (SDVKY), both carrying a Zacks Rank #2 (Buy).

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