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3 Metal Fabrication Stocks to Watch in a Promising Industry
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The Zacks Metal Products - Procurement and Fabrication industry is poised to gain from demand in the end-use sectors, such as manufacturing, aerospace and automotive. The recent indications of easing supply-chain disruptions instill optimism.
Players like Norsk Hydro ASA (NHYDY - Free Report) , ESAB Corporation (ESAB - Free Report) and Kaiser Aluminum (KALU - Free Report) have witnessed order growth and delivered improved results despite the inflationary scenario and supply-chain woes. Solid end-market demand, efforts to gain market share and investment in automation should aid growth for these companies. Their focus on cost management and improving efficiency will boost margins.
About the Industry
The Zacks Metal Products - Procurement and Fabrication industry primarily comprises metal processing and fabrication services providers that transform metal into metal parts, machinery or components used across various other industries. Their processes include forging, stamping, bending, forming and machining, which are used to shape individual pieces of metal, and welding and assembling to join parts. The companies either use one of these processes or a combination of these. The most common raw materials utilized by metal fabrication companies include plate metal, formed or expanded metal, tube stock, welding wire or rod, and casting. The industry players serve an array of markets, including construction, mining, aerospace and defense, automotive, agriculture, oil and gas, electronics/electrical components, industrial equipment, and general consumer.
What's Shaping the Future of Metal Products - Procurement and Fabrication Industry
Easing Supply-Chain Snarls to Bring Relief: Per the Fed’s latest industrial production report, the aggregate production of fabricated metal products in the United States inched up 0.4% in January 2024, an improvement from the 0.7% dip reported in December 2021. Over the 12 months ended January 2024, the production of fabricated metal products declined 1.3%. Overall, industrial production was flat over the same period. Per the Federal Reserve, industrial production was down 0.1% in January 2024. In February 2024, the Institute for Supply Management’s manufacturing index was 47.8%, contracting for the 16th month in a row. The New Orders Index again slipped into the contraction territory, with a reading of 49.2% in February mainly due to seasonal factors. In January 2024, the index touched 52.5%, which raised hopes of a recovery. On a positive note, some industry players have recently noted that supply-chain issues are easing. Once the situation normalizes, demand in the metal Products - Procurement and Fabrication industry’s diverse end markets will drive its growth.
Pricing Actions to Combat High Costs: The industry has been experiencing significant inflation levels, including higher prices for labor, freight and fuel. The companies are currently witnessing labor shortages for some positions and incurring steep labor costs to meet demand. The industry players are focusing on pricing actions, cost-cutting measures, efforts to improve productivity and efficiency, and the diversification of the supplier bases to mitigate some of these headwinds.
Automation & End-Market Growth to Act as a Catalyst: The industry’s customer-focused approach to providing cost-effective technical solutions and automation to increase efficiency and lower labor costs, as well as the development of the latest and innovative products, should drive growth in the days ahead. Growth in the end-use sectors, such as manufacturing, aerospace and automotive, is anticipated to benefit the metal fabrication market over the next few years. Developing countries hold promise due to rapid industrialization. This, in turn, is likely to create demand.
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 upbeat prospects in the near term. The Zacks Metal Products - Procurement and Fabrication industry, which is a 12-stock group within the broader Industrial Products Sector, currently carries a Zacks Industry Rank #92, which places it at the top 37% of 250 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 stocks that you may want to consider for your portfolio, let us take a look at the industry’s recent stock-market performance and valuation picture.
Industry Versus Broader Sector
The Zacks Metal Products - Procurement and Fabrication industry has outperformed its sector and the Zacks S&P 500 composite over the past year.
Over this period, the industry has gained 22.4% compared with the sector’s growth of 17.2%. Meanwhile, the Zacks S&P 500 composite has risen 15.1%.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month EV/EBITDA ratio, which is a commonly used multiple for valuing Metal Products - Procurement and Fabrication companies, the industry is currently trading at 18.87 compared with the S&P 500’s 12.25 and the Industrial Products sector’s forward 12-month EV/EBITDA of 18.54. This is shown in the charts below.
Enterprise Value/EBITDA (EV/EBITDA) F12M Ratio
Enterprise Value/EBITDA (EV/EBITDA) F12M Ratio
Over the last five years, the industry traded as high as 24.44 and as low as 4.55, the median being at 8.86.
3 Metal Products - Procurement and Fabrication Stocks to Keep Tabs on
Kaiser Aluminum: The company witnessed a notable 48% year-over-year surge in adjusted EBITDA in 2023, primarily fueled by the robust performance within aerospace and high-strength applications. Demand for aerospace products remains solid, resulting in both net sales and conversion revenues reaching record levels in 2023. This momentum is expected to persist in 2024, bolstered by customer commitments for commercial jets and heightened demand within the defense, space and business jet sectors. In packaging applications, shipments and conversion revenues are expected to improve as destocking ends in coated food products, along with anticipated steady demand improvements for both beverage and food products. Positioned favorably within diverse end markets and equipped with multi-year contracts with strategic partners, the company is poised for growth. Efforts to lower costs, streamline operations and enhance manufacturing efficiencies will help it bolster margins. The company intends to pursue strategic growth initiatives in its aerospace/high-strength and packaging applications.
Franklin, TN-based Kaiser Aluminum, together with its subsidiaries, engages in the manufacturing and sale of semi-fabricated specialty aluminum mill products in the United States and internationally. The Zacks Consensus Estimate for KALU’s current-year earnings has moved north by 21% over the past 60 days. Earnings estimates suggest year-over-year growth of 31%. The company has a trailing four-quarter earnings surprise of 157.2%. It currently sports a Zacks Rank #1 (Strong Buy).
Norsk Hydro: The company has been adjusting its capacity to meet market demand. It continues to focus on reducing costs and improving operational excellence, and has set a target to improve EBITDA by NOK 14 billion in 2030 from the 2018 baseline. It has been progressing with the Hydro 2025 strategy by strengthening its position in low-carbon aluminum and growing in new energy areas. In fourth-quarter 2023, NHYDY completed the sale of the 30% interest in the Brazilian alumina refinery Hydro Alunorte and Norsk Hydro’s 5% interest in the bauxite producer Mineracão Rio do Norte. The deal, valued at $1.11 billion, marks a milestone for the 2025 strategy. The company will be more balanced in relation to the demand for alumina from the aluminum smelter portfolio. The transactions enable capital reallocation into strategic growth areas. The company recently invested NOK 225 million ($21 million) to upgrade the remaining 120 electrolytic cells at Hydro Husnes with state-of-the-art technology. When completed, the aluminum plant on the west coast of Norway will be one of the most modern and energy-efficient production sites for primary aluminum in the world.
The Zacks Consensus Estimate for Norsk Hydro’s earnings for fiscal 2024 has moved up 4% over the past 60 days. The estimate indicates 25% year-over-year growth. The company has a trailing four-quarter earnings surprise of 15.5%, on average. NHYDY has an estimated long-term earnings growth rate of 15.6% and a Zacks Rank #2 (Buy) at present.
Price and Consensus: NHYDY
ESAB: The company recently reported record sales, profit and cash flow for the fourth quarter of 2023. ESAB has been simplifying its product lines, and introducing new and innovative products, fueling growth and profitability. It continues to drive innovation, growth, margin expansion and higher cash flow using its ESAB Business Excellence system. The company expects continued improvement in adjusted EBITDA and earnings per share in 2024. ESAB’s acquisitions of Ohio Medical, Therapy Equipment and Swift-Cut strengthened its gas-control and fabrication technology businesses and have performed above expectations. The company is progressing toward its goal of creating a faster-growing, higher-margin and less-cyclical business.
North Bethesda, MD-based ESAB engages in the formulation, development, manufacturing and supply of consumable products and equipment for use in cutting, joining and automated welding, as well as gas-control equipment. The Zacks Consensus Estimate for ESAB’s current-year earnings has moved north by 0.2% over the past 60 days. The estimate indicates year-over-year growth of 8.1%. The company has a trailing four-quarter earnings surprise of 13.8%. ESAB currently has a long-term estimated earnings growth of 10.2%. It currently carries a Zacks Rank #3 (Hold).
Price and Consensus: ESAB
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3 Metal Fabrication Stocks to Watch in a Promising Industry
The Zacks Metal Products - Procurement and Fabrication industry is poised to gain from demand in the end-use sectors, such as manufacturing, aerospace and automotive. The recent indications of easing supply-chain disruptions instill optimism.
Players like Norsk Hydro ASA (NHYDY - Free Report) , ESAB Corporation (ESAB - Free Report) and Kaiser Aluminum (KALU - Free Report) have witnessed order growth and delivered improved results despite the inflationary scenario and supply-chain woes. Solid end-market demand, efforts to gain market share and investment in automation should aid growth for these companies. Their focus on cost management and improving efficiency will boost margins.
About the Industry
The Zacks Metal Products - Procurement and Fabrication industry primarily comprises metal processing and fabrication services providers that transform metal into metal parts, machinery or components used across various other industries. Their processes include forging, stamping, bending, forming and machining, which are used to shape individual pieces of metal, and welding and assembling to join parts. The companies either use one of these processes or a combination of these. The most common raw materials utilized by metal fabrication companies include plate metal, formed or expanded metal, tube stock, welding wire or rod, and casting. The industry players serve an array of markets, including construction, mining, aerospace and defense, automotive, agriculture, oil and gas, electronics/electrical components, industrial equipment, and general consumer.
What's Shaping the Future of Metal Products - Procurement and Fabrication Industry
Easing Supply-Chain Snarls to Bring Relief: Per the Fed’s latest industrial production report, the aggregate production of fabricated metal products in the United States inched up 0.4% in January 2024, an improvement from the 0.7% dip reported in December 2021. Over the 12 months ended January 2024, the production of fabricated metal products declined 1.3%. Overall, industrial production was flat over the same period. Per the Federal Reserve, industrial production was down 0.1% in January 2024. In February 2024, the Institute for Supply Management’s manufacturing index was 47.8%, contracting for the 16th month in a row. The New Orders Index again slipped into the contraction territory, with a reading of 49.2% in February mainly due to seasonal factors. In January 2024, the index touched 52.5%, which raised hopes of a recovery. On a positive note, some industry players have recently noted that supply-chain issues are easing. Once the situation normalizes, demand in the metal Products - Procurement and Fabrication industry’s diverse end markets will drive its growth.
Pricing Actions to Combat High Costs: The industry has been experiencing significant inflation levels, including higher prices for labor, freight and fuel. The companies are currently witnessing labor shortages for some positions and incurring steep labor costs to meet demand. The industry players are focusing on pricing actions, cost-cutting measures, efforts to improve productivity and efficiency, and the diversification of the supplier bases to mitigate some of these headwinds.
Automation & End-Market Growth to Act as a Catalyst: The industry’s customer-focused approach to providing cost-effective technical solutions and automation to increase efficiency and lower labor costs, as well as the development of the latest and innovative products, should drive growth in the days ahead. Growth in the end-use sectors, such as manufacturing, aerospace and automotive, is anticipated to benefit the metal fabrication market over the next few years. Developing countries hold promise due to rapid industrialization. This, in turn, is likely to create demand.
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 upbeat prospects in the near term. The Zacks Metal Products - Procurement and Fabrication industry, which is a 12-stock group within the broader Industrial Products Sector, currently carries a Zacks Industry Rank #92, which places it at the top 37% of 250 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 stocks that you may want to consider for your portfolio, let us take a look at the industry’s recent stock-market performance and valuation picture.
Industry Versus Broader Sector
The Zacks Metal Products - Procurement and Fabrication industry has outperformed its sector and the Zacks S&P 500 composite over the past year.
Over this period, the industry has gained 22.4% compared with the sector’s growth of 17.2%. Meanwhile, the Zacks S&P 500 composite has risen 15.1%.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month EV/EBITDA ratio, which is a commonly used multiple for valuing Metal Products - Procurement and Fabrication companies, the industry is currently trading at 18.87 compared with the S&P 500’s 12.25 and the Industrial Products sector’s forward 12-month EV/EBITDA of 18.54. This is shown in the charts below.
Enterprise Value/EBITDA (EV/EBITDA) F12M Ratio
Enterprise Value/EBITDA (EV/EBITDA) F12M Ratio
Over the last five years, the industry traded as high as 24.44 and as low as 4.55, the median being at 8.86.
3 Metal Products - Procurement and Fabrication Stocks to Keep Tabs on
Kaiser Aluminum: The company witnessed a notable 48% year-over-year surge in adjusted EBITDA in 2023, primarily fueled by the robust performance within aerospace and high-strength applications. Demand for aerospace products remains solid, resulting in both net sales and conversion revenues reaching record levels in 2023. This momentum is expected to persist in 2024, bolstered by customer commitments for commercial jets and heightened demand within the defense, space and business jet sectors. In packaging applications, shipments and conversion revenues are expected to improve as destocking ends in coated food products, along with anticipated steady demand improvements for both beverage and food products. Positioned favorably within diverse end markets and equipped with multi-year contracts with strategic partners, the company is poised for growth. Efforts to lower costs, streamline operations and enhance manufacturing efficiencies will help it bolster margins. The company intends to pursue strategic growth initiatives in its aerospace/high-strength and packaging applications.
Franklin, TN-based Kaiser Aluminum, together with its subsidiaries, engages in the manufacturing and sale of semi-fabricated specialty aluminum mill products in the United States and internationally. The Zacks Consensus Estimate for KALU’s current-year earnings has moved north by 21% over the past 60 days. Earnings estimates suggest year-over-year growth of 31%. The company has a trailing four-quarter earnings surprise of 157.2%. It currently sports a Zacks Rank #1 (Strong Buy).
You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: KALU
Norsk Hydro: The company has been adjusting its capacity to meet market demand. It continues to focus on reducing costs and improving operational excellence, and has set a target to improve EBITDA by NOK 14 billion in 2030 from the 2018 baseline. It has been progressing with the Hydro 2025 strategy by strengthening its position in low-carbon aluminum and growing in new energy areas. In fourth-quarter 2023, NHYDY completed the sale of the 30% interest in the Brazilian alumina refinery Hydro Alunorte and Norsk Hydro’s 5% interest in the bauxite producer Mineracão Rio do Norte. The deal, valued at $1.11 billion, marks a milestone for the 2025 strategy. The company will be more balanced in relation to the demand for alumina from the aluminum smelter portfolio. The transactions enable capital reallocation into strategic growth areas. The company recently invested NOK 225 million ($21 million) to upgrade the remaining 120 electrolytic cells at Hydro Husnes with state-of-the-art technology. When completed, the aluminum plant on the west coast of Norway will be one of the most modern and energy-efficient production sites for primary aluminum in the world.
The Zacks Consensus Estimate for Norsk Hydro’s earnings for fiscal 2024 has moved up 4% over the past 60 days. The estimate indicates 25% year-over-year growth. The company has a trailing four-quarter earnings surprise of 15.5%, on average. NHYDY has an estimated long-term earnings growth rate of 15.6% and a Zacks Rank #2 (Buy) at present.
Price and Consensus: NHYDY
ESAB: The company recently reported record sales, profit and cash flow for the fourth quarter of 2023. ESAB has been simplifying its product lines, and introducing new and innovative products, fueling growth and profitability. It continues to drive innovation, growth, margin expansion and higher cash flow using its ESAB Business Excellence system. The company expects continued improvement in adjusted EBITDA and earnings per share in 2024. ESAB’s acquisitions of Ohio Medical, Therapy Equipment and Swift-Cut strengthened its gas-control and fabrication technology businesses and have performed above expectations. The company is progressing toward its goal of creating a faster-growing, higher-margin and less-cyclical business.
North Bethesda, MD-based ESAB engages in the formulation, development, manufacturing and supply of consumable products and equipment for use in cutting, joining and automated welding, as well as gas-control equipment. The Zacks Consensus Estimate for ESAB’s current-year earnings has moved north by 0.2% over the past 60 days. The estimate indicates year-over-year growth of 8.1%. The company has a trailing four-quarter earnings surprise of 13.8%. ESAB currently has a long-term estimated earnings growth of 10.2%. It currently carries a Zacks Rank #3 (Hold).
Price and Consensus: ESAB