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Zacks Industry Outlook Highlights: Stanley Black & Decker, Inc., Lincoln Electric Holdings, Inc. and Kennametal Inc

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For Immediate Release

Chicago, IL – February 14, 2022 – Today, Zacks Equity Research discusses Stanley Black & Decker, Inc. (SWK - Free Report) , Lincoln Electric Holdings, Inc. (LECO - Free Report) and Kennametal Inc. (KMT - Free Report) .

Industry: Manufacturing Tools

Link: https://www.zacks.com/commentary/1866217/2-stocks-to-watch-in-challenging-manufacturing-tools-industry

Players in the Zacks Manufacturing-Tools & Related Products industry are poised to benefit from healthy economic and manufacturing activities in the country. Also, trade activities worldwide are gaining strength and boosting growth prospects for the industry participants.

However, supply-chain restrictions, mainly related to the availability of semiconductor chips, have adversely impacted operations in the past and are predicted to be spoilsports in the quarters ahead. High labor and raw material costs, and logistic issues are other concerns. Two industry players, which are worth a look in the industry at present, are Stanley Black & Decker, Inc. and Lincoln Electric Holdings, Inc.

About the Industry

The Zacks Manufacturing-Tools & Related Products industry comprises companies that develop and distribute hand and mechanics tools, hydraulic tools, engineered fastening systems, and heavy-lifting technology solutions. Arc-welding products, robotic-welding packages, fume-extraction equipment, oxy-fuel cutting equipment, plasma cutters, healthcare solutions, electronic security solutions and other products are also produced by some tool-makers.

The highly advanced tools are used in industrial, commercial, oil & gas, mining, automotive, and other industries. The providers of electronic security solutions cater to commercial, retailers, government, financial and healthcare markets. Talking about international operations, some industry players provide products and services to customers in North and South America, Japan, Europe, Canada, Asia, and the Middle East.

What's Shaping the Future of Manufacturing Tools Industry?

Favorable Operating Environment: Recovery in economic and manufacturing activities in the United States and across the globe is favoring the industry players. The International Monetary Fund predicts year-over-year world output growth of 4.4% for 2022, while it anticipates an increase of 4% for the United States. In addition, improving industrial production in the United States is a good sign for manufacturing players. The country’s industrial production expanded 3.7% year over year in January 2022. Investments for the development of infrastructures in the country are beneficial.

Other Tailwinds: There has been a growing preference for home & garden, do-it-yourself, health, safety, home improvement and electrification products. Housing, repair and remodeling markets are also recovering well. Such a trend is beneficial for companies like Stanley Black & Decker. The surge in e-commerce businesses in the industry has been proving advantageous. Investments to expand innovative and manufacturing capabilities made by the industry participants will also help enhance growth opportunities.

Prevalent Supply and Cost Concerns: The industry players have been dealing with the adverse impacts of the supply-chain crisis over the past few quarters. This has adversely impacted the demand environment for some and inflated costs for others. For Kennametal Inc., issues related to the availability of semiconductor chips have limited growth opportunities in the transportation markets. Also, logistic problems, inflation in raw material prices, and rising freight charges are concerning for margins and profitability of the players.

Persistent Woes: Despite wider recoveries from the headwinds, the pandemic still has lingering impacts on some players in the industry, which is concerning. The pandemic-led restrictions are worrisome for Enerpac Tool in the Americas/Europe region. Also, the same has affected labor availability in the Middle East, North Africa and Caspian regions.

Such issues might persist in the coming quarters as well. The changing preferences of customers have made innovation and constant upgradation of existing products necessities for manufacturing companies. Such actions require high investments and often leave companies with a highly leveraged balance sheet.

Zacks Industry Rank Suggests Weak Prospects

The Manufacturing-Tools & Related Products industry is a five-stock group within the broader Zacks Industrial Products sector. The industry currently carries a Zacks Industry Rank #238, which places it in the bottom 4% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bleak prospects in the near term. 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 resulted from unpromising earnings prospects for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in the group’s earnings growth potential. The industry’s earnings estimates for 2022 have been decreased by 2.3% since the beginning of fourth-quarter 2021, while that for 2023 have been lowered by 14.9%.

Before we discuss a few stocks in the industry, let’s take a look at the industry’s shareholder returns and current valuation.

Industry Underperforms S&P 500 & Sector

The Zacks Manufacturing-Tools & Related Products industry has underperformed both the S&P 500 and the sector in the past year.

While the industry players have collectively declined 12.7%, the sector has lost 0.1%. The S&P 500 has rallied 16.7% in the said time frame.

Manufacturing-Tools & Related Products Industry's Valuation

The P/E ratio is one of the commonly used methods for valuing manufacturing tools and related product stocks.

The industry’s forward 12-month P/E ratio is 10.57. This clearly shows that the industry is trading below the S&P 500’s ratio of 20.56 and the sector’s 18.61.

Over the past five years, the industry has traded at the highest level of 21.45X forward 12-month P/E and the lowest level of 10.57X. The median level over the same period was 15.66X.

2 Manufacturing Tool Stocks Worth Watching

Below we have discussed two stocks from the industry currently carrying a Zacks Rank #3 (Hold), which can be on investors’ watch list.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stanley Black & Decker: The company specializes in making industrial tools (power and hand tools) and related accessories. It also provides electronic security solutions, healthcare solutions, engineered fastening systems and other services. Solid product offerings, efforts to innovate, a surge in the e-commerce business, and strengthening repair and remodeling, and housing markets are set to benefit the company in the quarters ahead. However, commodity price inflation, currency issues and a hike in other costs are concerning.

Shares of this New Britain, CT-based company have lost 6.2% in the past year. It reported better-than-expected results in the last four quarters, with an earnings surprise of 11.22%, on average. The company’s earnings estimates suggest year-over-year growth of 15.36% for 2022. In the next five years, its earnings are expected to increase 7.5%.

Lincoln Electric: The company engages in making welding and cutting products for use in multiple industries, including petrochemical, transportation and fabrication. Innovative products, synergistic gains from buyouts, strengthening end markets and the use of digital platforms are expected to benefit it in the quarters ahead. However, supply-chain woes, raw material and labor cost inflation, and the pandemic-led issues are headwinds.

Shares of this Cleveland, OH-based company have gained 9.6% in the past year. It delivered better-than-expected results in the last four quarters, with an average of 11.92%. Its earnings estimates for 2022 suggest year-over-year growth of 14.12%. Earnings are predicted to grow 13% in the next five years.

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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.


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