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The Zacks Diversified Operations industry is benefiting from continued growth in manufacturing activities, thanks to recovery in the U.S. economy. Strong demand across various end markets, such as commercial aviation, chemical, industrial, aerospace and defense, as well as auto market recovery, bodes well for the industry. These factors place the industry on a solid footing for the near term despite ongoing supply-chain-related woes, high raw material costs and labor shortages.
Against this buoyant backdrop, companies like Carlisle Companies, Griffon Corp. andStar Equity Holdings are poised for growth.
About the Industry
The Zacks Diversified Operations industry includes companies that operate in various end-markets, including oil & gas, industrial, electronics, power, aviation, technology, finance, healthcare, chemical, non-residential construction, and transportation. Such companies manufacture and provide equipment and solutions, including bioprocessing products, molecular testing-related products, gas and steam turbines, generators, commercial jet engines, and engineered fluid-process equipment.
The industry players also provide related services to a large customer base. In addition, a few companies offer services in the agriculture, marine and telecommunications markets, and are engaged in providing environmental and safety solutions. The diversified market operators have a vast global presence, with exposure in the United States, Japan, India, China, Canada and other countries.
3 Trends Shaping the Future of the Diversified Operations Industry
Increase in Manufacturing Activities: Continued growth in manufacturing activities over the past several months bodes well for the industry players as it indicates strong demand for their products. Although the manufacturing index decreased 3.1 percentage points to 53% in June, it does remain above 50, which suggests expansion in manufacturing.
Manufacturing activities have continued to expand, with the manufacturing PMI (Purchasing Managers' Index) remaining above 50 since July 2021. While demand remains strong, manufacturing activities are being currently weighed down by the ongoing supply chain snarls and labor shortage. Nevertheless, manufacturing activities are expected to pick up as these headwinds abate. This should foster growth of industry players.
Demand Across Various End-Markets: Though slower, the U.S. economy continues to recover from the pandemic-led slump. This is driving demand across the industry's numerous end markets. High demand for vaccines (COVID-19) and therapeutics also bode well for the industry players with exposure to the medical market.
Industry players with exposure in the commercial aviation markets are poised to gain from healthy growth in air transport flight hours. Strength across chemical, industrial, aerospace and defense end markets, along with auto market recovery, is expected to drive companies' organic sales. For companies offering safety and productivity solutions, solid demand for productivity solutions and services, along with strength in advanced sensing technologies and gas detection businesses, are expected to drive growth.
Efforts to Counter Supply-Chain and Cost Woes in Place: Persistent supply chain disruptions, especially those related to the shortage of semiconductor chips, are hurting operations of industry players. Longer delivery times are affecting production volumes for companies. The situation is unlikely to improve in the near term as the Russia-Ukraine war worsens the supply chain crisis.
Inflationary pressure and labor shortages are added headwinds in the industry, which might impede production capabilities. In this scenario, the industry players have been focusing on pricing actions, cost-cutting measures, and efforts to improve productivity and efficiency that will help sustain margins. The digitalization of business operations has enabled industry participants to boost their competitiveness with enhanced operational productivity and product quality.
Zacks Industry Rank Reflects Healthy Prospects
The Zacks Diversified Operations industry, housed within the broader Zacks Conglomerates sector, currently carries a Zacks Industry Rank #52. This rank places it in the top 21% 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 bright prospects. Our research shows that the top 50% of Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
The industry's position in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group's earnings growth potential. The industry's earnings estimate has been revised upward by 2.5% since March end.
Given the bullish near-term prospects of the industry, we will present a few stocks that you may want to consider for your portfolio. But it is worth taking a look at the industry's shareholder returns and its current valuation first.
Industry Lags S&P 500
Over the past year, the Zacks Diversified Operations has underperformed the Zacks S&P 500 composite index. The industry has declined 27.5% compared with the S&P 500 Index's 12.4% decrease.
Industry's Current Valuation
On the basis of EV/EBITDA (F12M), which is a commonly used multiple for valuing diversified operations stocks, the industry is currently trading at 10.09X compared with the S&P 500's 11.6.
Over the past five years, the industry has traded as high as 14.56X, as low as 8.33X and at the median of 10.74X.
3 Diversified Operations Stocks to Buy
Carlisle: Based in Scottsdale, AZ, the company engages in manufacturing and providing roofing and waterproofing products, finishing equipment and engineered products. CSL is expected to benefit from a robust reroofing market in the United States and growth in architectural metals platform.
Also, growing demand for energy-efficient building products, coupled with a strong backlog level, bodes well for the company. Strength in the medical technologies business and recovery in the commercial aerospace business in the United States are other catalysts to its growth. Backed by these tailwinds, the company's shares have rallied 28.4% in the past year.
The Zacks Consensus Estimate for the company's current-year earnings has been revised upward by 10.7% in the past 60 days. Carlisle sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
Griffon: This New-York-based entity is primarily a management and holding company operating through its subsidiaries. The January 2022 acquisition of Hunter Fan is expected to continue to drive GFF's top line.
The company expects the transaction to contribute approximately $400 million in revenues and $90 million in EBITDA in fiscal 2022. This has been instrumental in the 14.1% gain in its share price over the past year. Strategic investments in automation and facilities expansion also support growth of the company.
Griffon currently flaunts a Zacks Rank #1. The Zacks Consensus Estimate for GFF's current-year earnings has been revised upward by 28.9% in the past 60 days.
Star Equity: A diversified holding company, STRR primarily operates across the healthcare and construction industries. Higher construction revenues, owing to strong housing market demand, are driving the company's top line. Uptick in diagnostic imaging volumes bodes well for the healthcare segment. Pricing action implemented to counter higher raw material prices is expected to drive its profits in 2022. The stock has lost 70.6% over the past year.
Star Equity currently carries a Zacks Rank #2 (Buy), The Zacks Consensus Estimate for the company's current-year earnings has been revised upward by nearly 91% in the past 60 days.
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 Carlisle Companies, Griffon and Star Equity Holdings
For Immediate Release
Chicago, IL – July 8, 2022 – Today, Zacks Equity Research discusses Carlisle Companies (CSL - Free Report) , Griffon Corp. (GFF - Free Report) and Star Equity Holdings (STRR - Free Report)
Industry: Diversified Operations
Link: https://www.zacks.com/commentary/1949083/3-stocks-to-buy-from-the-prospering-diversified-operations-industry
The Zacks Diversified Operations industry is benefiting from continued growth in manufacturing activities, thanks to recovery in the U.S. economy. Strong demand across various end markets, such as commercial aviation, chemical, industrial, aerospace and defense, as well as auto market recovery, bodes well for the industry. These factors place the industry on a solid footing for the near term despite ongoing supply-chain-related woes, high raw material costs and labor shortages.
Against this buoyant backdrop, companies like Carlisle Companies, Griffon Corp. andStar Equity Holdings are poised for growth.
About the Industry
The Zacks Diversified Operations industry includes companies that operate in various end-markets, including oil & gas, industrial, electronics, power, aviation, technology, finance, healthcare, chemical, non-residential construction, and transportation. Such companies manufacture and provide equipment and solutions, including bioprocessing products, molecular testing-related products, gas and steam turbines, generators, commercial jet engines, and engineered fluid-process equipment.
The industry players also provide related services to a large customer base. In addition, a few companies offer services in the agriculture, marine and telecommunications markets, and are engaged in providing environmental and safety solutions. The diversified market operators have a vast global presence, with exposure in the United States, Japan, India, China, Canada and other countries.
3 Trends Shaping the Future of the Diversified Operations Industry
Increase in Manufacturing Activities: Continued growth in manufacturing activities over the past several months bodes well for the industry players as it indicates strong demand for their products. Although the manufacturing index decreased 3.1 percentage points to 53% in June, it does remain above 50, which suggests expansion in manufacturing.
Manufacturing activities have continued to expand, with the manufacturing PMI (Purchasing Managers' Index) remaining above 50 since July 2021. While demand remains strong, manufacturing activities are being currently weighed down by the ongoing supply chain snarls and labor shortage. Nevertheless, manufacturing activities are expected to pick up as these headwinds abate. This should foster growth of industry players.
Demand Across Various End-Markets: Though slower, the U.S. economy continues to recover from the pandemic-led slump. This is driving demand across the industry's numerous end markets. High demand for vaccines (COVID-19) and therapeutics also bode well for the industry players with exposure to the medical market.
Industry players with exposure in the commercial aviation markets are poised to gain from healthy growth in air transport flight hours. Strength across chemical, industrial, aerospace and defense end markets, along with auto market recovery, is expected to drive companies' organic sales. For companies offering safety and productivity solutions, solid demand for productivity solutions and services, along with strength in advanced sensing technologies and gas detection businesses, are expected to drive growth.
Efforts to Counter Supply-Chain and Cost Woes in Place: Persistent supply chain disruptions, especially those related to the shortage of semiconductor chips, are hurting operations of industry players. Longer delivery times are affecting production volumes for companies. The situation is unlikely to improve in the near term as the Russia-Ukraine war worsens the supply chain crisis.
Inflationary pressure and labor shortages are added headwinds in the industry, which might impede production capabilities. In this scenario, the industry players have been focusing on pricing actions, cost-cutting measures, and efforts to improve productivity and efficiency that will help sustain margins. The digitalization of business operations has enabled industry participants to boost their competitiveness with enhanced operational productivity and product quality.
Zacks Industry Rank Reflects Healthy Prospects
The Zacks Diversified Operations industry, housed within the broader Zacks Conglomerates sector, currently carries a Zacks Industry Rank #52. This rank places it in the top 21% 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 bright prospects. Our research shows that the top 50% of Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
The industry's position in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group's earnings growth potential. The industry's earnings estimate has been revised upward by 2.5% since March end.
Given the bullish near-term prospects of the industry, we will present a few stocks that you may want to consider for your portfolio. But it is worth taking a look at the industry's shareholder returns and its current valuation first.
Industry Lags S&P 500
Over the past year, the Zacks Diversified Operations has underperformed the Zacks S&P 500 composite index. The industry has declined 27.5% compared with the S&P 500 Index's 12.4% decrease.
Industry's Current Valuation
On the basis of EV/EBITDA (F12M), which is a commonly used multiple for valuing diversified operations stocks, the industry is currently trading at 10.09X compared with the S&P 500's 11.6.
Over the past five years, the industry has traded as high as 14.56X, as low as 8.33X and at the median of 10.74X.
3 Diversified Operations Stocks to Buy
Carlisle: Based in Scottsdale, AZ, the company engages in manufacturing and providing roofing and waterproofing products, finishing equipment and engineered products. CSL is expected to benefit from a robust reroofing market in the United States and growth in architectural metals platform.
Also, growing demand for energy-efficient building products, coupled with a strong backlog level, bodes well for the company. Strength in the medical technologies business and recovery in the commercial aerospace business in the United States are other catalysts to its growth. Backed by these tailwinds, the company's shares have rallied 28.4% in the past year.
The Zacks Consensus Estimate for the company's current-year earnings has been revised upward by 10.7% in the past 60 days. Carlisle sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
Griffon: This New-York-based entity is primarily a management and holding company operating through its subsidiaries. The January 2022 acquisition of Hunter Fan is expected to continue to drive GFF's top line.
The company expects the transaction to contribute approximately $400 million in revenues and $90 million in EBITDA in fiscal 2022. This has been instrumental in the 14.1% gain in its share price over the past year. Strategic investments in automation and facilities expansion also support growth of the company.
Griffon currently flaunts a Zacks Rank #1. The Zacks Consensus Estimate for GFF's current-year earnings has been revised upward by 28.9% in the past 60 days.
Star Equity: A diversified holding company, STRR primarily operates across the healthcare and construction industries. Higher construction revenues, owing to strong housing market demand, are driving the company's top line. Uptick in diagnostic imaging volumes bodes well for the healthcare segment. Pricing action implemented to counter higher raw material prices is expected to drive its profits in 2022. The stock has lost 70.6% over the past year.
Star Equity currently carries a Zacks Rank #2 (Buy), The Zacks Consensus Estimate for the company's current-year earnings has been revised upward by nearly 91% in the past 60 days.
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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.