We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
4 Worthy Stocks From Flourishing Diversified Operations Industry
Read MoreHide Full Article
Players in the Zacks Diversified Operations industry are leveraging the pandemic-induced demand in the medical equipment and personal safety products markets. Also, strengthening businesses in markets like defense and industrial manufacturing are boons.
Though the pandemic-related challenges are still concerning for a few companies, focus on product innovation, the expansion of e-commerce businesses and improving supply chains are acting as tailwinds. Four companies namely Danaher Corporation (DHR - Free Report) , 3M Company (MMM - Free Report) , Crane Co. (CR - Free Report) and Griffon Corporation (GFF - Free Report) are exhibiting solid earnings growth potential in the present environment.
About the Industry
The Zacks Diversified Operations industry includes companies that operate in various end-markets like oil & gas, industrial, aviation, technology, finance, healthcare, and transportation. Such companies manufacture and provide equipment, solutions and related services to a vast customer base.
In addition, there are a few companies that provide services in the agriculture, marine and telecommunications markets, and are engaged in providing environmental and safety solutions.
What’s Shaping the Future of Diversified Operations Industry?
Pandemic-Induced Demand in Medical and Safety Markets: Businesses in the medical equipment and personal safety markets have flourished due to the pandemic. The demand for personal protective equipment, face masks, test equipment, sanitizers and other products are on the rise. It is worth mentioning that, Danaher’s Cytiva and Pall Biotech businesses are poised to benefit from the healthy demand for COVID-19 vaccines and therapeutics, while solid demand for products associated with molecular testing will likely boost the Cepheid business. Also, healthy demand for ventilators, imaging and ultrasound products has been benefiting General Electric Company (GE - Free Report) .
Other Tailwinds: Improving operating conditions — as evident from increasing manufacturing activities, healthy demand and strong supply chain — will be boons for companies with exposure in industrial manufacturing. It is worth mentioning here that industrial production in the United States advanced 1.6% month over month in December 2020. Also, businesses from defense customers have been quite healthy for companies like Honeywell International Inc. (HON - Free Report) . In addition to these, growing online businesses and the government’s development efforts are likely to bode well for the industry.
Persistent Woes: Despite showing resiliency, some players in the industry still believe that end-market challenges caused by the pandemic will continue to impact their operations in the near term. Among them, Crane expects its top-line performance to be adversely impacted in the first half of 2021. Also, 3M expects 2020 headwinds to create 35-45 cents of earnings headwind in 2021. In addition, some players are dealing with highly leveraged balance sheets, strained trade relations and fluctuating foreign currencies.
Zacks Industry Rank Reflects Bright Prospects
The Zacks Diversified Operations industry is a 22-stock group within the broader Zacks Conglomerates sector. The industry currently carries a Zacks Industry Rank #97, which places it in the top 38% 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 healthy potential prospects. 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 top 50% of the Zacks-ranked industries is a result of strong earnings prospects for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gaining confidence in this group’s earnings growth potential. The industry’s earnings estimates for 2021 have increased 3.4% since the end of October 2020.
We will present a few stocks that you may consider for your portfolio. But it is worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Underperforms S&P 500
The Zacks Diversified Operations industry’s performance has been worse than the S&P 500 over the trailing 12 months. The stocks in the industry have collectively gained 12.6% compared with the S&P 500’s growth of 17.9%.
Past Year Price Performance
Diversified Operations Industry’s Valuation
EV/EBITDA ratio is commonly used for valuing companies with diversified operations.
The industry’s forward 12-month EV/EBITDA ratio is 30.87. This multiple is way above the S&P 500’s 17.2.
Over the past five years, the industry has traded at the highest level of 33.64X forward 12-month EV/EBITDA and the lowest level of 16.90X. The median level was 22.49X over the same period.
Industry’s EV/EBITDA Ratio (Forward 12-Month) Versus S&P 500
Danaher: The company makes and sells industrial, consumer, professional and commercial products. It benefits from growth opportunities within the Life Sciences and Diagnostics segments. It currently has a Zacks Rank #2 and a market capitalization of $168.7 billion.
Shares of this Washington, DC-based company have gained 2.6% in the past three months. Its earnings surprise for the last four quarters was 19.86%, on average. Also, the company’s earnings estimates have improved 5.3% for 2021 in the past 30 days.
Price and Consensus: DHR
3M: The St. Paul, MN-based technology company engages in providing products in various end markets, including electronics, industrial, safety, transportation, consumer, healthcare and others. Solid demand for respirators and other products as well as focus on innovation and cost-saving actions are expected to aid the company in the quarters ahead. However, raw materials and divested businesses might be concerning. The company, with a market capitalization of $104.9 billion, presently carries a Zacks Rank #3.
Shares of this company have gained 4.4% in the past three months. Its average earnings surprise was 5.81%, on average, for the last four quarters. Also, the company’s earnings estimates have improved 1.2% for 2021.
Price and Consensus: MMM
Crane: The company makes and sells engineered industrial products for use in automated payment solutions, aerospace, power, electronics, general industrial and other end markets. Its growth opportunities in the near term are healthy in the general industrial, chemical and pharmaceutical end markets. However, the pandemic-related woes might affect the company. It currently has a Zacks Rank #3 and a market capitalization of $4.8 billion.
Shares of this Stamford, CT-based company have gained 35.4% in the past three months. Its earnings surprise for the last four quarters was 12.37%, on average. Also, the company’s earnings estimates have improved 3.3% for 2021 in the past 30 days.
Price and Consensus: CR
Griffon: The New York-based company is primarily a management and holding company operating through its subsidiaries. Product innovation, solid manufacturing capabilities, specialized household and building products, and a surge in the e-commerce business are expected to aid the company’s performance. It presently has a market capitalization of $1.4 billion.
Shares of this Zacks Rank #2 company have gained 25.6% in the past three months. In the last four quarters, the company delivered an earnings surprise of 115.48%, on average. In the past 30 days, the company’s earnings estimates have moved up 9.2% for fiscal 2021 (ending September 2021).
Price and Consensus: GFF
Zacks Top 10 Stocks for 2021
In addition to the stocks discussed above, would you like to know about our 10 best buy-and-hold tickers for the entirety of 2021?
Last year's 2020 Zacks Top 10 Stocks portfolio returned gains as high as +386.8%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.
Image: Bigstock
4 Worthy Stocks From Flourishing Diversified Operations Industry
Players in the Zacks Diversified Operations industry are leveraging the pandemic-induced demand in the medical equipment and personal safety products markets. Also, strengthening businesses in markets like defense and industrial manufacturing are boons.
Though the pandemic-related challenges are still concerning for a few companies, focus on product innovation, the expansion of e-commerce businesses and improving supply chains are acting as tailwinds. Four companies namely Danaher Corporation (DHR - Free Report) , 3M Company (MMM - Free Report) , Crane Co. (CR - Free Report) and Griffon Corporation (GFF - Free Report) are exhibiting solid earnings growth potential in the present environment.
About the Industry
The Zacks Diversified Operations industry includes companies that operate in various end-markets like oil & gas, industrial, aviation, technology, finance, healthcare, and transportation. Such companies manufacture and provide equipment, solutions and related services to a vast customer base.
In addition, there are a few companies that provide services in the agriculture, marine and telecommunications markets, and are engaged in providing environmental and safety solutions.
What’s Shaping the Future of Diversified Operations Industry?
Pandemic-Induced Demand in Medical and Safety Markets: Businesses in the medical equipment and personal safety markets have flourished due to the pandemic. The demand for personal protective equipment, face masks, test equipment, sanitizers and other products are on the rise. It is worth mentioning that, Danaher’s Cytiva and Pall Biotech businesses are poised to benefit from the healthy demand for COVID-19 vaccines and therapeutics, while solid demand for products associated with molecular testing will likely boost the Cepheid business. Also, healthy demand for ventilators, imaging and ultrasound products has been benefiting General Electric Company (GE - Free Report) .
Other Tailwinds: Improving operating conditions — as evident from increasing manufacturing activities, healthy demand and strong supply chain — will be boons for companies with exposure in industrial manufacturing. It is worth mentioning here that industrial production in the United States advanced 1.6% month over month in December 2020. Also, businesses from defense customers have been quite healthy for companies like Honeywell International Inc. (HON - Free Report) . In addition to these, growing online businesses and the government’s development efforts are likely to bode well for the industry.
Persistent Woes: Despite showing resiliency, some players in the industry still believe that end-market challenges caused by the pandemic will continue to impact their operations in the near term. Among them, Crane expects its top-line performance to be adversely impacted in the first half of 2021. Also, 3M expects 2020 headwinds to create 35-45 cents of earnings headwind in 2021. In addition, some players are dealing with highly leveraged balance sheets, strained trade relations and fluctuating foreign currencies.
Zacks Industry Rank Reflects Bright Prospects
The Zacks Diversified Operations industry is a 22-stock group within the broader Zacks Conglomerates sector. The industry currently carries a Zacks Industry Rank #97, which places it in the top 38% 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 healthy potential prospects. 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 top 50% of the Zacks-ranked industries is a result of strong earnings prospects for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gaining confidence in this group’s earnings growth potential. The industry’s earnings estimates for 2021 have increased 3.4% since the end of October 2020.
We will present a few stocks that you may consider for your portfolio. But it is worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Underperforms S&P 500
The Zacks Diversified Operations industry’s performance has been worse than the S&P 500 over the trailing 12 months. The stocks in the industry have collectively gained 12.6% compared with the S&P 500’s growth of 17.9%.
Past Year Price Performance
Diversified Operations Industry’s Valuation
EV/EBITDA ratio is commonly used for valuing companies with diversified operations.
The industry’s forward 12-month EV/EBITDA ratio is 30.87. This multiple is way above the S&P 500’s 17.2.
Over the past five years, the industry has traded at the highest level of 33.64X forward 12-month EV/EBITDA and the lowest level of 16.90X. The median level was 22.49X over the same period.
Industry’s EV/EBITDA Ratio (Forward 12-Month) Versus S&P 500
4 Diversified Operations Stocks to Look For
Below we have discussed four stocks from the industry that have solid earnings growth potential. The chosen companies currently carry a Zacks Rank #2 (Buy) or a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Danaher: The company makes and sells industrial, consumer, professional and commercial products. It benefits from growth opportunities within the Life Sciences and Diagnostics segments. It currently has a Zacks Rank #2 and a market capitalization of $168.7 billion.
Shares of this Washington, DC-based company have gained 2.6% in the past three months. Its earnings surprise for the last four quarters was 19.86%, on average. Also, the company’s earnings estimates have improved 5.3% for 2021 in the past 30 days.
Price and Consensus: DHR
3M: The St. Paul, MN-based technology company engages in providing products in various end markets, including electronics, industrial, safety, transportation, consumer, healthcare and others. Solid demand for respirators and other products as well as focus on innovation and cost-saving actions are expected to aid the company in the quarters ahead. However, raw materials and divested businesses might be concerning. The company, with a market capitalization of $104.9 billion, presently carries a Zacks Rank #3.
Shares of this company have gained 4.4% in the past three months. Its average earnings surprise was 5.81%, on average, for the last four quarters. Also, the company’s earnings estimates have improved 1.2% for 2021.
Price and Consensus: MMM
Crane: The company makes and sells engineered industrial products for use in automated payment solutions, aerospace, power, electronics, general industrial and other end markets. Its growth opportunities in the near term are healthy in the general industrial, chemical and pharmaceutical end markets. However, the pandemic-related woes might affect the company. It currently has a Zacks Rank #3 and a market capitalization of $4.8 billion.
Shares of this Stamford, CT-based company have gained 35.4% in the past three months. Its earnings surprise for the last four quarters was 12.37%, on average. Also, the company’s earnings estimates have improved 3.3% for 2021 in the past 30 days.
Price and Consensus: CR
Griffon: The New York-based company is primarily a management and holding company operating through its subsidiaries. Product innovation, solid manufacturing capabilities, specialized household and building products, and a surge in the e-commerce business are expected to aid the company’s performance. It presently has a market capitalization of $1.4 billion.
Shares of this Zacks Rank #2 company have gained 25.6% in the past three months. In the last four quarters, the company delivered an earnings surprise of 115.48%, on average. In the past 30 days, the company’s earnings estimates have moved up 9.2% for fiscal 2021 (ending September 2021).
Price and Consensus: GFF
Zacks Top 10 Stocks for 2021
In addition to the stocks discussed above, would you like to know about our 10 best buy-and-hold tickers for the entirety of 2021?
Last year's 2020 Zacks Top 10 Stocks portfolio returned gains as high as +386.8%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.
Access Zacks Top 10 Stocks for 2021 today >>