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Zacks Industry Outlook Highlights: Caterpillar, Komatsu, H&E Equipment Services, Terex Corp and Manitowoc Company

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For Immediate Release

Chicago, IL – June 25, 2021 – Today, Zacks Equity Research discusses Construction & Mining Equipment, including Caterpillar Inc. (CAT - Free Report) , Komatsu Ltd. (KMTUY - Free Report) , H&E Equipment Services,Inc. (HEES - Free Report) , Terex Corporation (TEX - Free Report) and The Manitowoc Company, Inc. (MTW - Free Report) .

Link: https://www.zacks.com/commentary/1753502/5-construction-mining-equipment-stocks-defying-industry-odds

After being impacted by the COVID-19 pandemic last year, the Zacks Manufacturing - Construction and Mining industry seems to be coming out of the woods, aided by the reopening of businesses as evident from the pick-up in manufacturing activity lately. However, the industry is currently grappling with higher input and logistic costs, and labor shortages.

Meanwhile, industry players like CaterpillarKomatsuH&E Equipment ServicesTerex Corp and The Manitowoc Company are cutting down costs, improving efficiency and investing in digital initiatives to drive growth.

About the Industry

The Zacks Manufacturing - Construction and Mining industry comprises companies that manufacture and sell construction, mining, and utility equipment. They support customers using machinery in the construction of commercial, institutional and residential buildings, and infrastructure projects. Their equipment is also utilized in underground mining, drilling, and mineral processing, and surface mining to extract and haul copper, iron ore, coal, oil sands, aggregates, gold and other minerals and ores.

The products are varied, including loaders, pavers, dozers, excavators, concrete mixer trucks, crushing, pulverizing & screening equipment, tractors and cranes. The industry participants also provide support to oil and gas, power generation, marine, rail and industrial applications through their reciprocating engines, generator sets, gas turbines and turbine-related services.

What's Shaping the Future of Manufacturing - Construction and Mining Industry

Higher Costs & Supply Chain Woes Remain Concerns: The industry is currently facing input cost inflation (mainly steel), transport and logistic costs. It is struggling to keep up with the increase in demand due to shortage of labor and supply chain issues. Notably, the industry players are making every effort to bolster their financial condition, conserve cash and improve profitability.

The companies have been implementing cost-reduction actions, which are likely to help sustain margins in this scenario. Furthermore, these companies are focused on streamlining their operations and realigning around high-growth key markets or customer segments to boost performance.

Pickup in Industrial Activity Bodes Well: The COVID-19 pandemic had dealt a severe blow to the industry early last year as it led to factory closures worldwide, supply-chain disruptions, low demand and logistic costs. However, gradual resumption of global economic activities and reopening of businesses have led to a pickup in industrial activity.

Notably, U.S. industrial production increased 0.8% in May — the third straight month of growth. Manufacturing production advanced 0.9% and production at mines rose 1.2%. The U.S manufacturing sector is being supported lately by the massive coronavirus relief stimulus, low interest rates and sustained higher demand for goods. Further, manufacturing activity has been improving in other parts of the world as well.

Improvement in Mining & Construction Instills Hope: Improving commodity prices will trigger the resumption of spending in the mining industry. This will boost the top-line performance of mining equipment manufacturers. In the United States, solid prospects of the housing market, backed by the rising need for more work-at-home spaces and record-low mortgage rates, are expected to act as a tailwind for construction equipment manufacturers.

Also, the government's plans to increase investment in infrastructure construction — particularly in critical sub-sectors such as transportation, water and sewerage, and telecommunications — will support demand in the coming years. In China, the government’s stimulus program focused on new infrastructure and urbanization will fuel demand for equipment.

Investment in Digital Initiatives to be a Game Changer: The industry participants are investing in digital initiatives like AI, cloud computing, advanced analytics and robotics. Digital transformation aids the organizations in boosting productivity, increasing efficiency, reliability and safety, thereby enhancing customer satisfaction.

Further, with the growing focus on cutting down carbon emissions, mining companies around the world are relying on autonomous machinery. Thus, the companies are stepping up their research and technological capabilities to bring products into the market equipped with the latest technology.

Zacks Industry Rank Indicates Weak Prospects

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dim prospects in the near term. The Zacks Manufacturing - Construction and Mining industry, which is part of the broader Zacks Industrial Products Sector currently, carries a Zacks Industry Rank #130, which places it at the bottom 48% of 252 Zacks industries.

The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group’s earnings growth potential. In the past month, the industry’s earnings estimates for the current year have gone down 1%.

Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.

Industry Outperforms Sector & S&P 500

The Zacks Manufacturing - Construction and Mining industry has outperformed its own sector and the S&P 500 composite over the past year.

Over this period, the industry has gained 72.0% compared with the sector's growth of 51.8%. Meanwhile, the S&P 500 composite has rallied 39.7%.

Industry's Current Valuation

On the basis of forward 12-month EV/EBITDA ratio, which is a commonly-used multiple for valuing Manufacturing - Construction and Mining companies, we see that the industry is currently trading at 11.16 compared with the S&P 500’s 17.23 and the Industrial Products sector’s trailing 12-month EV/EBITDA of 19.24.

Over the last five years, the industry has traded as high as 14.66 and as low as 7.08, with the median being at 10.16.

5 Manufacturing - Construction & Mining Stocks to Look For

Caterpillar: Known for its iconic yellow machines, Deerfield, IL-based Caterpillar is the largest global manufacturer of construction and mining equipment.

The company is anticipated to gain on strong demand in China, pick-up in manufacturing activity, strength in residential construction in the United States, solid construction demand in Brazil and improving mining fundamentals. Its enduring commitment to cost control will keep driving margins. Caterpillar continues to focus on customers and future by continuously investing in digital capabilities, connecting assets and jobsites, and developing the next generation of more productive and efficient products, which provides it a competitive edge.

The Zacks Consensus Estimate for the company’s ongoing-year earnings has moved up 18% over the past 60 days. The company has a trailing four-quarter earnings surprise of 41.6%, on average. Notably, Caterpillar has an estimated long-term earnings growth rate of 12%. Shares of this Zacks Ranked #2 (Buy) company have gained 71.6% in the past year.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

H&E Equipment Services: This Baton Rouge, LA-based company is one of the largest integrated equipment services companies in the United States.

The company continues to grow its fleet, and the fleet age as of Apr 30, 2021 was 41.5 months compared with the industry average of 52.5 months. This provides it an edge over its competitors. H&E Equipment will gain on its acquisition strategy that focuses on identifying and acquiring rental companies to complement its existing business, broaden geographic footprint, and increase density in existing markets.

Efforts to grow its Parts and Services operations will yield results as it is a relatively stable high-margin revenue source. It also aids in developing customer relationships, attracting new customers and maintaining a high-quality rental fleet. Pick-up in spending in the construction industry will translate into higher revenues for the company.

At present, the stock carries a Zacks Rank of 2. The Zacks Consensus Estimate for this year’s earnings has been revised upward by 10% in the past 60 days. The company has a trailing four-quarter earnings surprise of 67%, on average. The company has an estimated long-term earnings growth rate of 33.4%. The company’s shares have appreciated 91% in the past year.

Komatsu: Headquartered in Tokyo, Japan, Komatsu manufactures and sells construction, mining, utility equipment, and forest and industrial machinery worldwide.

Komatsu continues to strengthen the Autonomous Haulage System (AHS), in sync with its growth strategies. The company has increased the total number of AHS trucks in operation to 352 units in fiscal 2020, surpassing its target of 330 units.

It also continues to accelerate the speed of achieving digital transformation at construction workplaces through SMARTCONSTRUCTION, which will provide it a competitive edge. The company is also developing its product portfolio. Moreover, it will benefit from its cost-reduction efforts. Additionally, demand for mining equipment will remain steady in iron ore, copper, and gold mines, while it will be on path to recovery in coal mines.

The Zacks Consensus Estimate for the company’s current-year earnings has been revised upward by 2% over the past 60 days. The company has a trailing four-quarter earnings surprise of 32.9%, on average. Komatsu has an estimated long-term earnings growth rate of 9.3%. The stock has gained 25% in the past year. It currently carries a Zacks Rank #3 (Hold).

Terex: The Norwalk, CT-based company is a global manufacturer of aerial work platforms, materials processing machinery and cranes.

Terex is advancing well on its “Execute, Innovate, Grow” strategy that will help drive cash flow and profitability. It continues to invest in innovative products, expansion of manufacturing facilities and adding scope through acquisitions.

The company strives to continuously develop its product offerings by applying technology and investing in connected assets and digital capabilities to better serve customers. At the same time, it remains focused on maintaining a strong liquidity and cash position. The company’s efforts to right size its cost structure will help bolster margins.

The Zacks Consensus Estimate for the company’s earnings for the ongoing year has moved north by 9.3% over the past 60 days. The company has a trailing four-quarter earnings surprise of 307%, on average. This Zacks #3 Ranked stock has soared 138% in the past year.

Manitowoc: This Milwaukee, WI-based company is a leading provider of engineered lifting solutions, including lattice-boom cranes, tower cranes, mobile telescopic cranes and boom trucks.

The company’s innovation pipeline remains robust, which will continue to aid it in leading the industry by providing differentiated products that add value to customers. Manitowoc’s aftermarket business also continues to perform well.

Growth is primarily stemming from higher-margin parts and services. It remains focused on improving this crucial part of the business. The company remains committed to cash preservation and balance sheet management while funding critical programs for future growth.

Given that the tower crane market in China is the largest tower crane market in the world, Manitowoc is scaling up its Chinese tower crane business. It is also expanding its tower crane rental fleet in Europe. These strategic initiatives along with the company’s pursuit of acquisition opportunities to accelerate product development programs in its all-terrain product line will help drive long-term growth.

The Zacks Consensus Estimate for this year’s earnings have gone up 61% in the past 60 days. The company has a trailing four-quarter earnings surprise of 67%, on average. The company has an estimated long-term earnings growth rate of 10%. This Zacks #3 Ranked stock has surged 120% in the past year.

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