The Zacks Diversified Operations industry has been grappling with rising operating costs and high debt level. Industry participants have also been facing concerns due to the ongoing impact of supply-chain issues.

However, the industry is benefiting from the strength across aerospace and defense industries. Growth in the commercial aviation sector and efforts to expand market presence through strategic acquisitions have allowed the industry participants to stay competitive in the market. Honeywell International Inc. (HON Quick QuoteHON - Free Report) , 3M Company (MMM Quick QuoteMMM - Free Report) , ITT Inc. (ITT Quick QuoteITT - Free Report) and Carlisle Companies Incorporated (CSL Quick QuoteCSL - Free Report) are likely to capitalize on the opportunities.

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. Industry players also provide related services to a large customer base. 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.

Major Trends Shaping the Future of the Diversified Operations Industry

Rising Costs Hurt Margins: Industry participants have been encountering input cost inflation and other expenses, which have been denting profitability. Also, supply-chain issues might increase raw material and other logistics expenses. The latest ISM report’s Supplier Deliveries Index reflects slower deliveries for the fourth straight month in March 2026. The rise in expenses, along with a tough labor market, poses a threat to margins. That said, companies have been focused on cost management initiatives to mitigate cost-related challenges. These include streamlining operational structures, optimizing supply networks and implementing effective pricing policies.

High Debt Levels: Industry participants constantly focus on innovation, product upgrades and the development of new products to cater to the changing customer needs and stay competitive, making steady investments necessary. While this augurs well for the industry’s long-term growth, hefty investments in research and development often leave companies with highly leveraged balance sheets. The industry’s long-term debt/capital ratio is currently 0.44, higher than 0.27 of the Zacks S&P 500 composite index.

Strength in the Aerospace and Defense Markets: The prospects of multi-sector companies are closely linked to the operating conditions of end markets. Some factors that are currently favoring the industry are robust demand from the aerospace and defense sectors and infrastructure development. With commercial and military aircraft programs expected to continue benefiting from strength in air travel and steady government support, industry players with exposure to these markets are poised to maintain strong demand momentum. Also, solid demand for several products and equipment in the consumer & professional, and home & building product markets bodes well for some industry participants.

Acquisition-Based Growth Strategy: The industry participants bank on an acquisition-based growth strategy to expand their customer reach and product offerings. This helps them foray into new markets and solidify their competitive position. Exposure to various end markets helps the companies offset risks associated with a single market.

Zacks Industry Rank Suggests Bleak Prospects

The Zacks Diversified Operations industry, housed within the broader Zacks Conglomerates sector, currently carries a Zacks Industry Rank #198. This rank places it in the bottom 19% of 243 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bleak prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.

The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of weak earnings prospects for the constituent companies in aggregate. Looking at the aggregate earnings estimate revision, it appears that analysts are keeping less faith in this group's earnings growth potential. The industry’s earnings estimates for the current year have moved down 18% in the past year.

We will present a few stocks that you may want to retain in your portfolio. It is worth taking a look at the industry’s shareholder returns and current valuation first.

Industry Lags the S&P 500

In the past year, the Zacks Diversified Operations industry has underperformed the Zacks S&P 500 composite. The industry has declined 2% against the S&P 500 Index’s 15.1% growth.

One-Year Price Performance

Industry's Current Valuation

On the basis of forward P/E (F12M), which is a commonly used multiple for valuing diversified operations stocks, the industry is currently trading at 15.08X compared with the S&P 500’s 19.86X.

Over the past five years, the industry has traded as high as 20.29X and as low as 10.91X, with a median of 15.08X, as the chart below shows:

Price-to-Earnings Ratio Versus S&P 500

4 Diversified Operations Stocks to Keep a Close Eye On

Honeywell: Based in Charlotte, NC, Honeywell is a global diversified technology and manufacturing company with a wide range of products and services. Its diversified portfolio includes aerospace products and services, energy-efficient products and solutions for businesses and process technology. HON is gaining strength in its commercial aviation aftermarket business, driven by solid demand in the air transport market and supply-chain improvements. Strength in its defense and space business, owing to stable U.S. and international defense spending volumes and sustained demand from the current geopolitical climate, has also been proving beneficial.

Shares of the Zacks Rank #3 (Hold) company rose 4.7% in the past year. The Zacks Consensus Estimate for Honeywell’s 2026 earnings has inched up 0.6% in the past 60 days. HON beat estimates in each of the last four reported quarters, delivering an average earnings surprise of 7.6%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Price and Consensus: HON

3M: Based in St. Paul, MN, 3M operates as a diversified technology firm. It has manufacturing operations across the globe and serves a diversified customer base throughout the world. The company stands to gain from strong momentum in the Safety and Industrial segment, driven by strength in industrial adhesives and tapes, abrasives and electrical markets. Strength in the electronics, aerospace and defense markets is aiding its Transportation and Electronics segment.

The company currently carries a Zacks Rank of 3. The Zacks Consensus Estimate for 3M’s 2026 earnings has increased 1.1% in the past 60 days. The company beat estimates in each of the last four reported quarters, delivering an average earnings surprise of 4.6%.

Price and Consensus: MMM

ITT: Headquartered in New York City, ITT is a global leader in multiple high-technology engineering and manufacturing industries. The company is poised to benefit from strength in the short-cycle business within the energy and industrial markets. Growth in component and connector sales within the aerospace and defense markets is aiding the company. Higher demand for brake components is also supporting its performance.

The Zacks Rank #3 company’s shares have risen 42.7% in the past year. The Zacks Consensus Estimate for ITT’s 2026 earnings implies year-over-year growth of 9.9%. The company beat estimates in each of the last four reported quarters, delivering an average earnings surprise of 3%.

Price and Consensus: ITT

Carlisle: Based in Scottsdale, AZ, Carlisle is engaged in the design, manufacture and sale of a wide range of roofing and waterproofing products, engineered products and finishing equipment. CSL is benefiting from strength in the non-residential market, driven by growing re-roof activity in the construction sector. The company’s Vision 2030 program is enabling it to unleash the full potential of its pure-play building products portfolio with best-in-class returns.

The Zacks Consensus Estimate for this Zacks Rank #3 company’s 2026 earnings per share implies year-over-year growth of 7.2%. Although shares of Carlisle lost 4.2% in the past year, they rose 4.3% in the year-to-date period. It beat estimates in each of the last four reported quarters, delivering an average earnings surprise of 1.8%.

Price and Consensus: CSL