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Zacks Industry Outlook Highlights: Norsk Hydro, Timken, Worthington Industries, Mueller Industries and TriMas
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For Immediate Release
Chicago, IL – July 13, 2021 – Today, Zacks Equity Research discusses Metal Fabrication including Norsk Hydro ASA (NHYDY - Free Report) , The Timken Company (TKR - Free Report) , Worthington Industries, Inc. (WOR - Free Report) , Mueller Industries, Inc. (MLI - Free Report) and TriMas Corporation (TRS - Free Report) .
The Zacks Metal Products - Procurement and Fabrication industry has been reporting strong growth in order levels over the past few months reflecting improving demand in its end-markets as businesses are resuming operations. The industry is struggling to keep pace with demand owing to labor shortages and supply issue constraints. Higher input costs remain a headwind.
Meanwhile, the industry players including Norsk Hydro, Timken Co., Worthington Industries, Mueller Industries and TriMas Corp. 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 that transform metal into metal parts, machinery, or components which are used across various other industries. Their processes include forging, stamping, bending, forming, and machining, which are used to shape individual pieces of metal, and welding and assembling to join separate parts together.
The companies either use one of these processes or a combination of these. The most common raw materials used by metal fabrication companies include plate metal, formed or expanded metal, tube stock, welding wire or rod, casting, etc. The industry players serve an 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
Improving Demand Bodes Well: The pandemic had weakened demand in several of the industry's end markets including transportation, mining and industrial early last year as customers had to temporarily idle their manufacturing facilities amid the restrictions imposed by the governments globally. Backed by the gradual reopening of businesses, the fabricated metal products industry has come out of that slump as evident from growth in new orders, production and backlog levels since July last year.
Per the Fed's latest industrial production report, aggregate production of fabricated metal products in the United States has been improving over the past three quarters and logged a 7.6% rise in the first quarter of 2021. In May, the industry's production level improved 8.4% on a year-over-year basis. The industry continues to witness strong order levels as customers are now placing orders for fourth-quarter 2021 and first-quarter 2022 owing to global supply chain issues.
Higher Costs & Supply Chain Woes Remain Concerns: The industry has been facing high raw material costs since mid-2020, particularly steel. Steel prices are expected to be higher in 2021 amid improving demand and continued supply constraints. The industry is currently facing shortage of labor, extended raw-materials lead times and transportation constraints, which are anticipated to persist in the next few quarters.
The industry players are thus making every effort to bolster their financial condition, conserve cash and improve profitability. The companies have been implementing cost-reduction actions, which are likely to help sustain margins in this scenario.
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 and innovative products will drive growth in the days ahead. Growth in end-use sectors such as manufacturing, 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 13-stock group within the broader Industrial Products Sector, currently carries a Zacks Industry Rank #199, which places it at the bottom 22% 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. Over the past month, the industry's earnings estimates for the current year have gone down by 1%.
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 Outperforms S&P 500 and Sector
The Zacks Metal Products - Procurement and Fabrication industry has outperformed its own sector and S&P 500 composite over the past year. Over this period, the industry has gained 62.1% compared with the sector's growth of 50.1%. Meanwhile, the Zacks S&P 500 composite has rallied 40%.
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 8.83 compared with the S&P 500's 15.89 and the Industrial Products sector's forward 12-month EV/EBITDA of 20.69. This is shown in the charts below.
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 8.03.
5 Metal Products - Procurement and Fabrication Stocks to Keep an Eye On
Timken: North Canton, OH-based Timken is a global manufacturer of engineered bearings and power transmission products. The company will gain on its strategic acquisitions to broaden portfolio and capabilities across diverse markets with focus on bearings, adjacent power transmission products, and related services.
Its diversity in terms of end market, customer and geography, product innovation, and engineering expertise provides it with a competitive edge. Cost-reduction actions will drive margins. Timken recently announced that it will make capital investments of more than $75 million through early 2022 in an effort to expand its renewable energy business, which is likely to act as a growth driver.
The Zacks Consensus Estimate for the company's current year earnings has moved up 7.6% over the past 90 days. The company has a trailing four-quarter earnings surprise of 60%, on average. The company has an estimated long-term earnings growth of 7.5%.
Norsk Hydro: Oslo, Norway-based Norsk Hydro operates as an integrated aluminum company worldwide.
The company is benefiting from higher volumes driven by recovery in key segments such as automotive, industrial, can, building and construction. Continued cost savings from improvement program initiatives will boost margins.
In line with its endeavor to improve profitability and drive sustainability, the company has recently sold its Hydro Rolling business. This is in sync with its aim to strengthen its position in low-carbon aluminium, while exploring new growth opportunities in renewable energy.
The Zacks Consensus Estimate for the company's current year earnings has moved north by 12% over the past 90 days. The stock has gained 44.3% so far this year. The company currently has a Zacks Rank #3 (Hold) and an estimated long-term earnings growth of 8%.
Worthington: 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 well-poised for growth through its three-tiered strategy — Transformation, Innovation and Acquisitions. The transformation aspect concentrates on making its businesses more capital efficient and profitable.
Earlier this year, the company sold its oil & gas equipment business, thus getting rid of a money-losing operation. The divestiture of the Pomona, CA-based Structural Composites Industries facility will help it focus on mobility businesses in Asia and Europe.
The innovation angle is focused on new product development, while acquisitions help augment product offerings and add higher margin businesses. It recently acquired some assets of the U.S. BlankLight business of Shiloh Industries, Inc., which broadened the capacity and capabilities of Worthington's laser welded products joint venture, TWB Company, LLC.
The company is building on its capabilities in automation, analytics and advanced technologies, which will help it stay ahead of the curve. Proactive steps to cut costs and strong demand in end markets will drive results.
The Zacks Consensus Estimate for the company's current year earnings has moved up 12% over the past 90 days. The company has a trailing four-quarter earnings surprise of 23.4%, on average. Year to date, the Zacks Ranked #2 stock has gained 19.9%.
Mueller Industries: This Collierville, TN-based company is a leading manufacturer of copper, brass, aluminum, and plastic products.
The company has delivered a third consecutive year of double-digit operating income growth that keeps it on track with its ambitious 2024 Strategic Plan. The plan calls for double digit compounded annual growth in operating income over a six-year period.
The company continues to focus on growth in value-added products and strategic buyouts. It recently acquired the Hart & Cooley Flexible Duct business that will expand its footprint in the air quality and climate control systems markets. These markets are integral to the company's growth strategy.
The demand for investment in refrigeration/food preservation and air conditioning/air quality, and the modernization of water management infrastructure is on the rise. These trends will support its long-term growth.
The Zacks Consensus Estimate for the company's current year earnings has been revised upward by 65% over the past 90 days. The stock has gained 19% year to date. The company currently has a Zacks Rank #3.
TriMas: Bloomfield Hills, MI-based TriMas manufactures and provides products for consumer products, aerospace and industrial end markets worldwide.
The company has a strong pipeline of both product and process innovation that will sustain long-term growth and position its businesses to capitalize on market opportunities as well as minimize market disruptions. It continues to pursue acquisitions to augment its product portfolio.
Focus on leveraging the TriMas Business Model, which was implemented in late 2016 to improve management and performance of its businesses, will also drive growth. Efforts to lower costs will help boost margins.
The Zacks Consensus Estimate for the company's current year earnings has moved up 20.9% over the past 90 days. The company has a trailing four-quarter earnings surprise of 18%, on average. The company currently carries a Zacks Rank #3.
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Highlights: Norsk Hydro, Timken, Worthington Industries, Mueller Industries and TriMas
For Immediate Release
Chicago, IL – July 13, 2021 – Today, Zacks Equity Research discusses Metal Fabrication including Norsk Hydro ASA (NHYDY - Free Report) , The Timken Company (TKR - Free Report) , Worthington Industries, Inc. (WOR - Free Report) , Mueller Industries, Inc. (MLI - Free Report) and TriMas Corporation (TRS - Free Report) .
Link: https://www.zacks.com/commentary/1760322/5-metal-fabrication-stocks-to-watch-amid-supply-chain-woes
The Zacks Metal Products - Procurement and Fabrication industry has been reporting strong growth in order levels over the past few months reflecting improving demand in its end-markets as businesses are resuming operations. The industry is struggling to keep pace with demand owing to labor shortages and supply issue constraints. Higher input costs remain a headwind.
Meanwhile, the industry players including Norsk Hydro, Timken Co., Worthington Industries, Mueller Industries and TriMas Corp. 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 that transform metal into metal parts, machinery, or components which are used across various other industries. Their processes include forging, stamping, bending, forming, and machining, which are used to shape individual pieces of metal, and welding and assembling to join separate parts together.
The companies either use one of these processes or a combination of these. The most common raw materials used by metal fabrication companies include plate metal, formed or expanded metal, tube stock, welding wire or rod, casting, etc. The industry players serve an 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
Improving Demand Bodes Well: The pandemic had weakened demand in several of the industry's end markets including transportation, mining and industrial early last year as customers had to temporarily idle their manufacturing facilities amid the restrictions imposed by the governments globally. Backed by the gradual reopening of businesses, the fabricated metal products industry has come out of that slump as evident from growth in new orders, production and backlog levels since July last year.
Per the Fed's latest industrial production report, aggregate production of fabricated metal products in the United States has been improving over the past three quarters and logged a 7.6% rise in the first quarter of 2021. In May, the industry's production level improved 8.4% on a year-over-year basis. The industry continues to witness strong order levels as customers are now placing orders for fourth-quarter 2021 and first-quarter 2022 owing to global supply chain issues.
Higher Costs & Supply Chain Woes Remain Concerns: The industry has been facing high raw material costs since mid-2020, particularly steel. Steel prices are expected to be higher in 2021 amid improving demand and continued supply constraints. The industry is currently facing shortage of labor, extended raw-materials lead times and transportation constraints, which are anticipated to persist in the next few quarters.
The industry players are thus making every effort to bolster their financial condition, conserve cash and improve profitability. The companies have been implementing cost-reduction actions, which are likely to help sustain margins in this scenario.
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 and innovative products will drive growth in the days ahead. Growth in end-use sectors such as manufacturing, 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 13-stock group within the broader Industrial Products Sector, currently carries a Zacks Industry Rank #199, which places it at the bottom 22% 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. Over the past month, the industry's earnings estimates for the current year have gone down by 1%.
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 Outperforms S&P 500 and Sector
The Zacks Metal Products - Procurement and Fabrication industry has outperformed its own sector and S&P 500 composite over the past year. Over this period, the industry has gained 62.1% compared with the sector's growth of 50.1%. Meanwhile, the Zacks S&P 500 composite has rallied 40%.
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 8.83 compared with the S&P 500's 15.89 and the Industrial Products sector's forward 12-month EV/EBITDA of 20.69. This is shown in the charts below.
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 8.03.
5 Metal Products - Procurement and Fabrication Stocks to Keep an Eye On
Timken: North Canton, OH-based Timken is a global manufacturer of engineered bearings and power transmission products. The company will gain on its strategic acquisitions to broaden portfolio and capabilities across diverse markets with focus on bearings, adjacent power transmission products, and related services.
Its diversity in terms of end market, customer and geography, product innovation, and engineering expertise provides it with a competitive edge. Cost-reduction actions will drive margins. Timken recently announced that it will make capital investments of more than $75 million through early 2022 in an effort to expand its renewable energy business, which is likely to act as a growth driver.
The Zacks Consensus Estimate for the company's current year earnings has moved up 7.6% over the past 90 days. The company has a trailing four-quarter earnings surprise of 60%, on average. The company has an estimated long-term earnings growth of 7.5%.
The stock has appreciated 3.9% year to date. The company currently carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Norsk Hydro: Oslo, Norway-based Norsk Hydro operates as an integrated aluminum company worldwide.
The company is benefiting from higher volumes driven by recovery in key segments such as automotive, industrial, can, building and construction. Continued cost savings from improvement program initiatives will boost margins.
In line with its endeavor to improve profitability and drive sustainability, the company has recently sold its Hydro Rolling business. This is in sync with its aim to strengthen its position in low-carbon aluminium, while exploring new growth opportunities in renewable energy.
The Zacks Consensus Estimate for the company's current year earnings has moved north by 12% over the past 90 days. The stock has gained 44.3% so far this year. The company currently has a Zacks Rank #3 (Hold) and an estimated long-term earnings growth of 8%.
Worthington: 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 well-poised for growth through its three-tiered strategy — Transformation, Innovation and Acquisitions. The transformation aspect concentrates on making its businesses more capital efficient and profitable.
Earlier this year, the company sold its oil & gas equipment business, thus getting rid of a money-losing operation. The divestiture of the Pomona, CA-based Structural Composites Industries facility will help it focus on mobility businesses in Asia and Europe.
The innovation angle is focused on new product development, while acquisitions help augment product offerings and add higher margin businesses. It recently acquired some assets of the U.S. BlankLight business of Shiloh Industries, Inc., which broadened the capacity and capabilities of Worthington's laser welded products joint venture, TWB Company, LLC.
The company is building on its capabilities in automation, analytics and advanced technologies, which will help it stay ahead of the curve. Proactive steps to cut costs and strong demand in end markets will drive results.
The Zacks Consensus Estimate for the company's current year earnings has moved up 12% over the past 90 days. The company has a trailing four-quarter earnings surprise of 23.4%, on average. Year to date, the Zacks Ranked #2 stock has gained 19.9%.
Mueller Industries: This Collierville, TN-based company is a leading manufacturer of copper, brass, aluminum, and plastic products.
The company has delivered a third consecutive year of double-digit operating income growth that keeps it on track with its ambitious 2024 Strategic Plan. The plan calls for double digit compounded annual growth in operating income over a six-year period.
The company continues to focus on growth in value-added products and strategic buyouts. It recently acquired the Hart & Cooley Flexible Duct business that will expand its footprint in the air quality and climate control systems markets. These markets are integral to the company's growth strategy.
The demand for investment in refrigeration/food preservation and air conditioning/air quality, and the modernization of water management infrastructure is on the rise. These trends will support its long-term growth.
The Zacks Consensus Estimate for the company's current year earnings has been revised upward by 65% over the past 90 days. The stock has gained 19% year to date. The company currently has a Zacks Rank #3.
TriMas: Bloomfield Hills, MI-based TriMas manufactures and provides products for consumer products, aerospace and industrial end markets worldwide.
The company has a strong pipeline of both product and process innovation that will sustain long-term growth and position its businesses to capitalize on market opportunities as well as minimize market disruptions. It continues to pursue acquisitions to augment its product portfolio.
Focus on leveraging the TriMas Business Model, which was implemented in late 2016 to improve management and performance of its businesses, will also drive growth. Efforts to lower costs will help boost margins.
The Zacks Consensus Estimate for the company's current year earnings has moved up 20.9% over the past 90 days. The company has a trailing four-quarter earnings surprise of 18%, on average. The company currently carries a Zacks Rank #3.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.