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Reasons to Add Lincoln Electric (LECO) to Your Portfolio Now

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Lincoln Electric Holdings Inc. (LECO - Free Report) is poised to gain from its focus on new product development, utilizing digital platforms and efforts to grow in the automation solutions market. Acquisitions also remain a catalyst. The company continues to implement cost reduction actions in the wake of the uncertainty created by the COVID-19 pandemic, which will help sustain margins.

The manufacturer and reseller of welding and cutting products has a market cap of around $5.3 billion. It has an expected long-term earnings per share growth rate of 10%.

Price Performance

Lincoln Electric’s shares have gained 2.5% in the past year, against the industry’s decline of 9.0%.

Earnings & Sales Beat Estimates in Q2

Lincoln Electric reported second-quarter 2020 adjusted earnings per share of 80 cents, which beat the Zacks Consensus Estimate of 34 cents. Revenues of $591 million also surpassed the Zacks Consensus Estimate of $556 million.

Positive Earnings Surprise History

Lincoln Electric has a trailing four-quarter earnings surprise of 31.1%, on average.

Superior Return on Assets

Lincoln Electric currently has a Return on Assets (ROA) of 10.7%, higher than the industry’s 5.0%. An above-average ROA denotes that the company is generating earnings by effectively managing its assets.

Key Catalysts

New Products & Automation to Drive Top-Line: The company is focused on new product development and utilizing digital platforms to engage customers. Focus on its new additive services business will position Lincoln Electric as a manufacturer of large scale 3D-printed metal spell parts, prototypes and tooling for industrial customers — a major growth prospect. It also continues to invest in long-term strategy for automation in support of its 2020 strategy initiatives.

Acquisitions Driving Growth: Lincoln Electric has been benefiting from several acquisitions done over the past few years. It acquired Inovatech Engineering Corporation and Coldwater Machine Company, Pro Systems LLC in 2018, which in turn bolstered its automated cutting solutions and application expertise. In 2019, Lincoln Electric acquired the soldering business of Worthington Industries (WOR - Free Report) , which broadened the Harris Products Group’s portfolio of industry-leading consumables. The company’s Baker Industries buyout enabled it to expand automation and additive strategies. The company also acquired a controlling interest in Askaynak — a leading Turkish producer of welding consumables and equipment. The buyout advances the company's regional growth strategy in Europe, the Middle East and Africa.

Cost Savings to Sustain Margins: Lincoln Electric is focusing on cost management to sustain margins in the backdrop of weak demand. These measures include reduced work hours, overtime, reducing headcount, deferring annual wage increases and freezing hiring. The company has also cut down discretionary spending and eliminated travel. It has commenced five manufacturing facility rationalizations to align with demand. Cost reduction actions are now anticipated to provide benefits of $55 to $65 million in 2020. Exiting 2020, the company expects to realize $8 to $9 million in permanent costs savings per quarter.

Positive Estimate Revision Activity

The company’s earnings estimate for the current year has been revised upward by 5% to $3.60 per share in the past 60 days. The estimate for fiscal 2021 earnings has moved up 3% over the past 60 days and currently stands at $4.41.

Zacks Rank & Other Stocks to Consider

Lincoln Electric currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some other top-ranked stocks in the Industrial Products sector include Astec Industries, Inc. (ASTE - Free Report) and Fortune Brands Home Security, Inc. (FBHS - Free Report) . Both the stocks carry a Zacks Rank #1.

Astec has a projected earnings growth rate of 13.8% for 2020. The company’s shares have appreciated 64% over the past year.

Fortune Brands has an expected earnings growth rate of 6.2% for the current year. The stock has surged 52% over the past year.

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