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4 Industrial Services Stocks to Watch in a Promising Industry
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The Zacks Industrial Services industry is well-poised to gain on the improvement in manufacturing activities from the COVID-19 induced lull, as economies started reopening and businesses resumed operations. It has been gaining momentum since, with new orders and production on a roll. The rise in e-commerce activities will drive the industry. Technological advancements and rising use of e-commerce solutions continue to grow at a rapid pace. The industry players including Ashtead Group PLC (ASHTY - Free Report) , KION GROUP AG (KIGRY - Free Report) , SiteOne Landscape Supply, Inc. (SITE - Free Report) and ScanSource, Inc. (SCSC - Free Report) have been making efforts to tap the scenario.
About the Industry
The Zacks Industrial Services industry comprises companies that provide industrial equipment products and MRO (maintenance, repair and operations) services. It includes activities such as routine maintenance work, emergency maintenance and spare parts inventory control, which keep a facility and its equipment in good operating condition. The industry's products (power tools, hand tools, cutting fluids, lubricants, Personal Protective Equipment and consumables) are utilized in production and plant maintenance but are not directly related to customers’ core products or services. The industry participants serve a wide array of customers ranging from commercial, government, healthcare to manufacturing. By offering inventory management, process and procurement solutions, these companies reduce MRO supply chain costs and improve customers' plant floor productivity.
What's Shaping the Future of Industrial Services Industry
Expansion in Manufacturing Activity Bodes Well: Around 70% of the industry’s revenues are derived from sales in the manufacturing sector. Trends in customers’ activity have historically correlated to changes in the Metalworking Business Index (“MBI”) and the Industrial Production Index (“IP”). The MBI is a sentiment index developed from a monthly survey of the U.S. metalworking industry, focusing on durable goods manufacturing. The index has been above 50, which indicates expansion, lately. Gains have been witnessed in production and new orders activity. Per the Federal Reserve, U.S industrial production has returned to pre-pandemic levels. In August, U.S. industrial production increased 0.4% in August, which was 0.3% above February 2020 — the last month of normalcy before the pandemic crippled industrial output. Manufacturing production improved 0.2% despite plant closures due to Hurricane Ida and was 1% above its pre-pandemic level. The ongoing improvement in business sentiment and operational activity instills further optimism.
COVID-19 & Cost Woes Linger: The COVID-19 pandemic has triggered significant volatility and uncertainty, which have severely impacted businesses, and the industrial services industry has been no exception to the trend. Disruptions or closures of customer and suppliers’ facilities, and supply chains were primary COVID-19 induced impediments to the industry While businesses have resumed operations, these risks persist. These companies are facing input cost inflation, transport and logistic costs and supply chain constraints. Meanwhile, the industry players have been implementing cost reduction actions, which include limiting discretionary spending, reducing hiring, and deferring certain discretionary capital expenditures. These initiatives along with price increases are likely to help the industry sustain margins.
E-Commerce Acting as a Key Catalyst: MRO demand has been significantly impacted by evolution of e-commerce. Customers’ demand for highly tailored solutions with real-time access to information and rapid delivery of products is on the rise. Customers basically want to execute their business activities in the most efficient way possible, which often means online. In 2020, over two billion people purchased goods or services online, which pushed e-retail sales above $4.2 trillion. Per Statista, revenues in the e-commerce market are expected to witness a CAGR of 6.3% over the 2021-2025 time period. To capitalize on this trend, the players in the industrial services industry have increased their focus on making investments in e-commerce and digital capabilities.
Zacks Industry Rank Indicates Bright Prospects
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright prospects in the near term. The Zacks Industrial Services Industry, which is a 19-stock group within the broader Zacks Industrial Products Sector, currently carries a Zacks Industry Rank #112, which places it at the top 45% of 249 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.
Before we present a few Industrial services stocks that investors can keep an eye on, it’s worth taking a look at the industry’s stock-market performance and valuation picture.
Industry Underperforms Sector & S&P 500
The Industrial Services industry has underperformed its own sector and the Zacks S&P 500 composite over the past year.
Over this period, the industry has fallen 30.4% against the sector’s growth of 6.3%. The Zacks S&P 500 composite has gained 16.7% in the same time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of forward 12-month EV/EBITDA ratio, which is a commonly used multiple for valuing Industrial Services companies, we see that the industry is currently trading at 22.31x compared with the S&P 500’s 14.75x and the Industrial Products sector’s forward 12-month EV/EBITDA of 18.25x. This is shown in the charts below.
Enterprise Value/EBITDA (EV/EBITDA) F12M Ratio
Enterprise Value/EBITDA (EV/EBITDA) TTM Ratio
Over the last five years, the industry has traded as high as 25.59x and as low as 7.43x, with the median being at 10.28x.
4 Industrial Services Stocks to Keep an Eye on
ScanSource: The company’s leadership position in large, niche markets along with sustained growth from innovative technology offerings across hardware, software, connectivity and cloud provide it with a competitive edge. The Barcode, Networking & Security segment is witnessing growth across key technologies, including mobile computing, self-checkout, video surveillance, and networking. Large deals supporting the mobile everywhere trend, including warehousing and logistics, curbside pickup and e-commerce, are driving growth. In the Communications & Services segment, growth in cloud enabled endpoints, accelerated by the shift to cloud, will contribute to the company’s performance. Its cost-control efforts will bolster margins. Backed by these factors, the stock has surged 38% so far this year.
The Zacks Consensus Estimate for the company’s 2021 earnings has been revised upward by 29% in the past 90 days. The Greenville, SC-based company, which distributes technology products and solutions, has a trailing four-quarter earnings surprise of 27.9%, on average. The company currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
Price: SCSC
Ashtead Group: The company is well-poised to deliver strong results driven by its diverse end markets and products, lower debt levels, and efforts to strengthen market position. Improved construction markets will boost results. Initiatives to optimize cash flow, reduce capital expenditure and operating costs are also likely to contribute to growth. Backed by a good quality fleet and a strong financial position, the company is well positioned to navigate through the turbulent times. It continues to invest in digital transformation program that will enhance customer experience. It has a strong pipeline of strategic acquisition opportunities to supplement its organic growth plan. Its shares have appreciated 61.9% so far this year.
The Zacks Consensus Estimate for 2021 earnings for this London, U.K. based company that engages in construction, industrial, and general equipment rental business has been revised upward by 7% in the past 90 days. It flaunts a Zacks Rank #1.
Price: ASHTY
SiteOne Landscape Supply: The company has been gaining from robust demand, as customers are spending more time at home and investing in their outdoor living spaces. This has aided the stock in appreciating 29% so far this year. In addition to organic growth, it has been enhancing its business through acquisitions to increase customer base, broadening product lines and expanding its geographic reach. It will gain from its focus on cost reduction and driving operational excellence, product category management, enhancing supply chain efficiency and strengthening pricing. The company has been investing more in sophisticated information technology systems and data analytics.
The Zacks Consensus Estimate for earnings for fiscal 2021 of the company has gone up 15% in the past 90 days. The company has a trailing four-quarter earnings surprise of 127%, on average. This Roswell, GA-based company, which is a national wholesale distributor of landscape supplies, currently carries a Zacks Rank #3 (Hold).
Price: SITE
KION GROUP: The company is progressing well on implementing the KION 2017 strategy, which is focused on innovation and performance, energy, digitalization and automation. It is expected to lead to above market growth for the company and improve margins. It is developing energy efficient technologies for industrial trucks. The company is reinforcing its technological position by introducing new software solutions and applications, and expanding its automated distribution centers. The company continues to expand its global sales and service network. Strong global demand for forklift trucks and warehouse trucks bodes well. KION’s shares have gained 7.6% over the past six months.
The company’s consensus estimate for 2021 earnings has moved up 9.5% in the past 90 days. Germany-based KION GROUP provides industrial trucks, warehouse technology, supply chain solutions, and related services worldwide. The company carries a Zacks Rank #3.
Price: KIGRY
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4 Industrial Services Stocks to Watch in a Promising Industry
The Zacks Industrial Services industry is well-poised to gain on the improvement in manufacturing activities from the COVID-19 induced lull, as economies started reopening and businesses resumed operations. It has been gaining momentum since, with new orders and production on a roll. The rise in e-commerce activities will drive the industry. Technological advancements and rising use of e-commerce solutions continue to grow at a rapid pace. The industry players including Ashtead Group PLC (ASHTY - Free Report) , KION GROUP AG (KIGRY - Free Report) , SiteOne Landscape Supply, Inc. (SITE - Free Report) and ScanSource, Inc. (SCSC - Free Report) have been making efforts to tap the scenario.
About the Industry
The Zacks Industrial Services industry comprises companies that provide industrial equipment products and MRO (maintenance, repair and operations) services. It includes activities such as routine maintenance work, emergency maintenance and spare parts inventory control, which keep a facility and its equipment in good operating condition. The industry's products (power tools, hand tools, cutting fluids, lubricants, Personal Protective Equipment and consumables) are utilized in production and plant maintenance but are not directly related to customers’ core products or services. The industry participants serve a wide array of customers ranging from commercial, government, healthcare to manufacturing. By offering inventory management, process and procurement solutions, these companies reduce MRO supply chain costs and improve customers' plant floor productivity.
What's Shaping the Future of Industrial Services Industry
Expansion in Manufacturing Activity Bodes Well: Around 70% of the industry’s revenues are derived from sales in the manufacturing sector. Trends in customers’ activity have historically correlated to changes in the Metalworking Business Index (“MBI”) and the Industrial Production Index (“IP”). The MBI is a sentiment index developed from a monthly survey of the U.S. metalworking industry, focusing on durable goods manufacturing. The index has been above 50, which indicates expansion, lately. Gains have been witnessed in production and new orders activity. Per the Federal Reserve, U.S industrial production has returned to pre-pandemic levels. In August, U.S. industrial production increased 0.4% in August, which was 0.3% above February 2020 — the last month of normalcy before the pandemic crippled industrial output. Manufacturing production improved 0.2% despite plant closures due to Hurricane Ida and was 1% above its pre-pandemic level. The ongoing improvement in business sentiment and operational activity instills further optimism.
COVID-19 & Cost Woes Linger: The COVID-19 pandemic has triggered significant volatility and uncertainty, which have severely impacted businesses, and the industrial services industry has been no exception to the trend. Disruptions or closures of customer and suppliers’ facilities, and supply chains were primary COVID-19 induced impediments to the industry While businesses have resumed operations, these risks persist. These companies are facing input cost inflation, transport and logistic costs and supply chain constraints. Meanwhile, the industry players have been implementing cost reduction actions, which include limiting discretionary spending, reducing hiring, and deferring certain discretionary capital expenditures. These initiatives along with price increases are likely to help the industry sustain margins.
E-Commerce Acting as a Key Catalyst: MRO demand has been significantly impacted by evolution of e-commerce. Customers’ demand for highly tailored solutions with real-time access to information and rapid delivery of products is on the rise. Customers basically want to execute their business activities in the most efficient way possible, which often means online. In 2020, over two billion people purchased goods or services online, which pushed e-retail sales above $4.2 trillion. Per Statista, revenues in the e-commerce market are expected to witness a CAGR of 6.3% over the 2021-2025 time period. To capitalize on this trend, the players in the industrial services industry have increased their focus on making investments in e-commerce and digital capabilities.
Zacks Industry Rank Indicates Bright Prospects
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright prospects in the near term. The Zacks Industrial Services Industry, which is a 19-stock group within the broader Zacks Industrial Products Sector, currently carries a Zacks Industry Rank #112, which places it at the top 45% of 249 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.
Before we present a few Industrial services stocks that investors can keep an eye on, it’s worth taking a look at the industry’s stock-market performance and valuation picture.
Industry Underperforms Sector & S&P 500
The Industrial Services industry has underperformed its own sector and the Zacks S&P 500 composite over the past year.
Over this period, the industry has fallen 30.4% against the sector’s growth of 6.3%. The Zacks S&P 500 composite has gained 16.7% in the same time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of forward 12-month EV/EBITDA ratio, which is a commonly used multiple for valuing Industrial Services companies, we see that the industry is currently trading at 22.31x compared with the S&P 500’s 14.75x and the Industrial Products sector’s forward 12-month EV/EBITDA of 18.25x. This is shown in the charts below.
Enterprise Value/EBITDA (EV/EBITDA) F12M Ratio
Enterprise Value/EBITDA (EV/EBITDA) TTM Ratio
Over the last five years, the industry has traded as high as 25.59x and as low as 7.43x, with the median being at 10.28x.
4 Industrial Services Stocks to Keep an Eye on
ScanSource: The company’s leadership position in large, niche markets along with sustained growth from innovative technology offerings across hardware, software, connectivity and cloud provide it with a competitive edge. The Barcode, Networking & Security segment is witnessing growth across key technologies, including mobile computing, self-checkout, video surveillance, and networking. Large deals supporting the mobile everywhere trend, including warehousing and logistics, curbside pickup and e-commerce, are driving growth. In the Communications & Services segment, growth in cloud enabled endpoints, accelerated by the shift to cloud, will contribute to the company’s performance. Its cost-control efforts will bolster margins. Backed by these factors, the stock has surged 38% so far this year.
The Zacks Consensus Estimate for the company’s 2021 earnings has been revised upward by 29% in the past 90 days. The Greenville, SC-based company, which distributes technology products and solutions, has a trailing four-quarter earnings surprise of 27.9%, on average. The company currently sports a Zacks Rank #1 (Strong Buy).
You can see the complete list of today's Zacks #1 Rank stocks here.
Price: SCSC
Ashtead Group: The company is well-poised to deliver strong results driven by its diverse end markets and products, lower debt levels, and efforts to strengthen market position. Improved construction markets will boost results. Initiatives to optimize cash flow, reduce capital expenditure and operating costs are also likely to contribute to growth. Backed by a good quality fleet and a strong financial position, the company is well positioned to navigate through the turbulent times. It continues to invest in digital transformation program that will enhance customer experience. It has a strong pipeline of strategic acquisition opportunities to supplement its organic growth plan. Its shares have appreciated 61.9% so far this year.
The Zacks Consensus Estimate for 2021 earnings for this London, U.K. based company that engages in construction, industrial, and general equipment rental business has been revised upward by 7% in the past 90 days. It flaunts a Zacks Rank #1.
Price: ASHTY
SiteOne Landscape Supply: The company has been gaining from robust demand, as customers are spending more time at home and investing in their outdoor living spaces. This has aided the stock in appreciating 29% so far this year. In addition to organic growth, it has been enhancing its business through acquisitions to increase customer base, broadening product lines and expanding its geographic reach. It will gain from its focus on cost reduction and driving operational excellence, product category management, enhancing supply chain efficiency and strengthening pricing. The company has been investing more in sophisticated information technology systems and data analytics.
The Zacks Consensus Estimate for earnings for fiscal 2021 of the company has gone up 15% in the past 90 days. The company has a trailing four-quarter earnings surprise of 127%, on average. This Roswell, GA-based company, which is a national wholesale distributor of landscape supplies, currently carries a Zacks Rank #3 (Hold).
Price: SITE
KION GROUP: The company is progressing well on implementing the KION 2017 strategy, which is focused on innovation and performance, energy, digitalization and automation. It is expected to lead to above market growth for the company and improve margins. It is developing energy efficient technologies for industrial trucks. The company is reinforcing its technological position by introducing new software solutions and applications, and expanding its automated distribution centers. The company continues to expand its global sales and service network. Strong global demand for forklift trucks and warehouse trucks bodes well.
KION’s shares have gained 7.6% over the past six months.
The company’s consensus estimate for 2021 earnings has moved up 9.5% in the past 90 days. Germany-based KION GROUP provides industrial trucks, warehouse technology, supply chain solutions, and related services worldwide. The company carries a Zacks Rank #3.
Price: KIGRY