Lincoln Electric Sparks Mildly

Lincoln Electric (LECO - Analyst Report) is a leading manufacturer and reseller of welding and cutting products. The company spent the last couple of years shifting manufacturing facilities to low-cost countries and expanding production capabilities to fast growing markets in China and India.

The company has high-technology product leadership. We expect LECO to benefit from the welding product demand created by the boom in infrastructure spending, especially in the oil & gas sector. However, despite LECO’s strong competitive position and clean balance sheet, we maintain a Hold rating due to certain macro risks.

The global economy could slow sharply, which would undermine commodity prices and potentially delay or postpone previously planned infrastructure projects. This could hurt the demand for the company’s welding equipment and consumables. The other risk is that inflationary pressures continue amid a weaker global economy and LECO may not be able to pass entire input costs to the customer. Under this scenario, profit margins would come under pressure.

We have valued Lincoln Electric using the P/E valuation metric and forward earnings estimates. At its current price, LECO trades at a P/E of 14.7x our FY08 EPS estimate of $5.49. LECO has a multi-year strategy to become more cost competitive. Our target price is $82.00, which is 14.9x our FY08 estimate of $5.49.

Read the full analyst report on LECO