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Zacks Industry Outlook Highlights Honeywell International, General Electric and 3M Company
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For Immediate Release
Chicago, IL – November 7, 2022 – Today, Zacks Equity Research discusses Honeywell International (HON - Free Report) , General Electric (GE - Free Report) and 3M Company (MMM - Free Report) .
The Zacks Diversified Operations industry is plagued by persistent supply chain disruptions, which are weighing on volumes. High raw material costs are hurting the margins of industry players. Labor shortages remain a perennial problem for the industry. Amid growing recessionary fears, a slowdown in manufacturing activities adds to the worries in the industry.
However, strength across end-markets is expected to support growth of Honeywell International, General Electric and 3M Company.
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
Supply Chain & Cost Woes: Supply chain disruptions, especially those related to the shortage of semiconductor chips, are hurting the operations of industry players. Delay in the delivery of products is weighing on production volumes, thus impacting margins. The persistent shortage of labor and high raw material costs are added concerns for the industry, posing a threat to the bottom-line performance of companies. Pricing actions and cost-control measures are helping industry players tackle the adversities.
Slowdown in Manufacturing Activities: Amid growing inflation and persistent supply chain challenges, manufacturing activities are slowing down, indicating softness in customer demand. In October, the Institute for Supply Management’s (ISM) Manufacturing Purchasing Manager's Index touched 50.2%, dipping 0.7 percentage point from the September reading. This was due to a decline in New Orders and New Export Orders Index.
Amid growing uncertainty surrounding the economy, the demand environment is expected to remain volatile in the near term. Nevertheless, despite a slowdown, the manufacturing index remained above 50%, indicating continued expansion in manufacturing activities. This should help the industry participants stay afloat despite the slowdown in the manufacturing sector.
Strength Across Various End-Markets: Although there is some softness in demand, with continued expansion in manufacturing activities, the industry is seeing sustained demand across its various end-markets, such as chemical and industrial pumps, commercial aerospace and defense, rail and electric vehicles. Companies with exposure to the life sciences vertical should benefit from robust activity in the bioprocessing business, and strength in instrument businesses, while those with exposure to the diagnostics vertical should gain from healthy demand for products related to respiratory testing. Companies offering construction materials are expected to benefit from the strengthening reroofing market in the United States, owing to new construction activity.
Zacks Industry Rank Indicates Gloomy Prospects
The Zacks Diversified Operations industry, housed within the broader Zacks Conglomerates sector, currently carries a Zacks Industry Rank #168. This rank places it in the bottom 33% 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 near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform 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 the negative earnings outlook for the constituent companies in aggregate. The Zacks Consensus Estimate for the group’s 2022 earnings per share has decreased 9.5% over the past year.
Despite the industry’s drab near-term prospects, we will present a few stocks that you may hold in your portfolios. But before that, it’s worth taking a look at the industry’s stock market performance and current valuation.
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 24% compared with the S&P 500 Index’s 22.5% 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 9.35X compared with the S&P 500’s 19.77.
Over the past five years, the industry has traded as high as 10.32X, as low as 5.85X and at the median of 7.78X.
Honeywell: Based in Morris Township, NJ, Honeywell is a global diversified technology and manufacturing company, with a wide range of aerospace products and services. The company is benefiting from impressive performance of the Aerospace segment owing to a recovery in commercial flights hours.
The acquired assets are fostering the company’s growth. While there is some softness in the Safety and Productivity Solutions unit due to lower personal protective equipment and warehouse automation volume, strong growth in commercial aviation, building products and productivity solutions should drive the growth of the company.
Honeywell has an estimated earnings growth rate of 8.3% for the current year. The company has an impressive earnings surprise history, having outperformed the Zacks Consensus Estimate in each of the trailing four quarters, the average beat being 2.7%. The stock has gained 6.3% in the past three months.
General Electric: Headquartered in Boston, MA, General Electric is a multinational conglomerate offering products and services, ranging from jet engines, airframes, energy production solutions to offshore wind turbines, technologies in medical imaging, and leasing and financing services. Strength in the Aerospace segment owing to continued recovery in the commercial market is supporting the company’s growth despite supply chain woes.
Portfolio reshaping actions have been contributing to GE’s growth. The development of new products and investments in innovation and productivity improvement should fuel the company’s growth.
General Electric has an estimated earnings growth rate of 19.8% for the current year. The company has an impressive earnings surprise history having outperformed the Zacks Consensus Estimate in three of the preceding four quarters, the average beat being 27.6%. Shares of the company have gained 5.4% in the past three months.
3M: Headquartered in St. Paul, MN, 3M is a diversified technology firm with manufacturing operations across the globe. Portfolio reshaping actions are expected to drive the company’s growth. Pricing actions, restructuring savings, and spending discipline are supporting MMM’s margin performance, despite inflationary pressure. Investments in growth and productivity should help the company capitalize on growth opportunities in large markets.
3M has an estimated earnings growth rate of approximately 1% for the current year. The company has a stellar earnings surprise history, having outperformed the Zacks Consensus Estimate in each of the trailing four quarters, the average beat being 8.4%. Shares of the company have declined 16.7% in the past three months.
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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 Honeywell International, General Electric and 3M Company
For Immediate Release
Chicago, IL – November 7, 2022 – Today, Zacks Equity Research discusses Honeywell International (HON - Free Report) , General Electric (GE - Free Report) and 3M Company (MMM - Free Report) .
Industry: Diversified Operations
Link: https://www.zacks.com/commentary/2014047/3-diversified-operations-stocks-to-watch-amid-industry-challenges
The Zacks Diversified Operations industry is plagued by persistent supply chain disruptions, which are weighing on volumes. High raw material costs are hurting the margins of industry players. Labor shortages remain a perennial problem for the industry. Amid growing recessionary fears, a slowdown in manufacturing activities adds to the worries in the industry.
However, strength across end-markets is expected to support growth of Honeywell International, General Electric and 3M Company.
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
Supply Chain & Cost Woes: Supply chain disruptions, especially those related to the shortage of semiconductor chips, are hurting the operations of industry players. Delay in the delivery of products is weighing on production volumes, thus impacting margins. The persistent shortage of labor and high raw material costs are added concerns for the industry, posing a threat to the bottom-line performance of companies. Pricing actions and cost-control measures are helping industry players tackle the adversities.
Slowdown in Manufacturing Activities: Amid growing inflation and persistent supply chain challenges, manufacturing activities are slowing down, indicating softness in customer demand. In October, the Institute for Supply Management’s (ISM) Manufacturing Purchasing Manager's Index touched 50.2%, dipping 0.7 percentage point from the September reading. This was due to a decline in New Orders and New Export Orders Index.
Amid growing uncertainty surrounding the economy, the demand environment is expected to remain volatile in the near term. Nevertheless, despite a slowdown, the manufacturing index remained above 50%, indicating continued expansion in manufacturing activities. This should help the industry participants stay afloat despite the slowdown in the manufacturing sector.
Strength Across Various End-Markets: Although there is some softness in demand, with continued expansion in manufacturing activities, the industry is seeing sustained demand across its various end-markets, such as chemical and industrial pumps, commercial aerospace and defense, rail and electric vehicles. Companies with exposure to the life sciences vertical should benefit from robust activity in the bioprocessing business, and strength in instrument businesses, while those with exposure to the diagnostics vertical should gain from healthy demand for products related to respiratory testing. Companies offering construction materials are expected to benefit from the strengthening reroofing market in the United States, owing to new construction activity.
Zacks Industry Rank Indicates Gloomy Prospects
The Zacks Diversified Operations industry, housed within the broader Zacks Conglomerates sector, currently carries a Zacks Industry Rank #168. This rank places it in the bottom 33% 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 near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform 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 the negative earnings outlook for the constituent companies in aggregate. The Zacks Consensus Estimate for the group’s 2022 earnings per share has decreased 9.5% over the past year.
Despite the industry’s drab near-term prospects, we will present a few stocks that you may hold in your portfolios. But before that, it’s worth taking a look at the industry’s stock market performance and current valuation.
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 24% compared with the S&P 500 Index’s 22.5% 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 9.35X compared with the S&P 500’s 19.77.
Over the past five years, the industry has traded as high as 10.32X, as low as 5.85X and at the median of 7.78X.
3 Diversified Operations Stocks to Keep a Tab On
Below we discuss three stocks from the diversified operations industry that are poised for growth despite challenges in the industry. Each of the stocks carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Honeywell: Based in Morris Township, NJ, Honeywell is a global diversified technology and manufacturing company, with a wide range of aerospace products and services. The company is benefiting from impressive performance of the Aerospace segment owing to a recovery in commercial flights hours.
The acquired assets are fostering the company’s growth. While there is some softness in the Safety and Productivity Solutions unit due to lower personal protective equipment and warehouse automation volume, strong growth in commercial aviation, building products and productivity solutions should drive the growth of the company.
Honeywell has an estimated earnings growth rate of 8.3% for the current year. The company has an impressive earnings surprise history, having outperformed the Zacks Consensus Estimate in each of the trailing four quarters, the average beat being 2.7%. The stock has gained 6.3% in the past three months.
General Electric: Headquartered in Boston, MA, General Electric is a multinational conglomerate offering products and services, ranging from jet engines, airframes, energy production solutions to offshore wind turbines, technologies in medical imaging, and leasing and financing services. Strength in the Aerospace segment owing to continued recovery in the commercial market is supporting the company’s growth despite supply chain woes.
Portfolio reshaping actions have been contributing to GE’s growth. The development of new products and investments in innovation and productivity improvement should fuel the company’s growth.
General Electric has an estimated earnings growth rate of 19.8% for the current year. The company has an impressive earnings surprise history having outperformed the Zacks Consensus Estimate in three of the preceding four quarters, the average beat being 27.6%. Shares of the company have gained 5.4% in the past three months.
3M: Headquartered in St. Paul, MN, 3M is a diversified technology firm with manufacturing operations across the globe. Portfolio reshaping actions are expected to drive the company’s growth. Pricing actions, restructuring savings, and spending discipline are supporting MMM’s margin performance, despite inflationary pressure. Investments in growth and productivity should help the company capitalize on growth opportunities in large markets.
3M has an estimated earnings growth rate of approximately 1% for the current year. The company has a stellar earnings surprise history, having outperformed the Zacks Consensus Estimate in each of the trailing four quarters, the average beat being 8.4%. Shares of the company have declined 16.7% in the past three months.
Why Haven’t You Looked at Zacks' Top Stocks?
Our 5 best-performing strategies have blown away the S&P's impressive +28.8% gain in 2021. Amazingly, they soared +40.3%, +48.2%, +67.6%, +94.4%, and +95.3%. Today you can access their live picks without cost or obligation.
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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.