Manufacturing - Electronics industry houses various companies, ranging from manufacturers of electronic products (like battery chargers, electrical motion controls and others) to providers of water-treatment products, process equipment and engineered flow components. In the past three months, the industry has gained 8.9% compared with the S&P 500’s growth of 8.7% and the Zacks Industrial Products sector’s rise of 1.4%. Subdued impacts of the pandemic and global economy progressing on growth track have been aiding the industry players in the past few months. Manufacturing activities have improved from the past year and demand is healthy as well. The industry offers some good investment options with solid earnings growth potential, while others should be preferably avoided at present. Prevalent supply-chain constraints are major concerns for such players. Labor issues, tariffs, inflation and freight are added woes. EnerSys ( ENS Quick Quote ENS - Free Report) — a manufacturer of industrial batteries, battery chargers and other products — suffered from labor, raw material and transportation constraints in the first quarter of fiscal 2022 (ending July 4, 2021). The company recorded a 17.3% increase in the cost of sales, while its operating expenses grew 3.4%. Gross margin was down 110 basis points from the year-ago quarter. The Pennsylvania-based company presently carries a Zacks Rank #4 (Sell). In the past three months, EnerSys’ share price has gained 2.5% as compared with the industry’s growth of 8.9%.
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The company expects adjusted earnings of $1.03-$1.13 per share for the second quarter of fiscal 2022 (ending September 2021). This represents a decline from $1.25 recorded in the quarter ended Jul 4. Much of the damage has been caused by concerns regarding the shortages of components, including resin and semiconductors. Labor constraints, and high tariffs and freight are other likely headwinds.
The company faces risks from well-diversified international operations, which expose it to geopolitical, currency translation and other risks. High investments to build/strengthen growth opportunities and huge debts might also be concerning. The Zacks Consensus Estimate for EnerSys’ earnings is pegged at $5.29 for fiscal 2022 (ending March 2022) and $6.29 for fiscal 2023 (ending March 2023). The estimates represent declines of 2.8% and 0.9% from the respective 30-day-ago figures. The consensus estimate for second-quarter fiscal 2022 of $1.15 per share suggests a decline of 10.9% from the 30-day-ago figure. Though the estimate is above the company’s projection for the quarter, it is below first-quarter fiscal 2022 earnings of $1.25. We now know why it is prudent for investors to avoid EnerSys stock for now. Meanwhile, for investors seeking exposure in the industry, we have selected four companies with solid fundamentals and growth potential. Eaton Corporation plc ( ETN Quick Quote ETN - Free Report) : Based in Dublin, Ireland, it is a well-renowned power management company. It engages in making electrical components and systems. The company is poised to benefit from its wide customer base, sound research and development programs, acquisitions, and restructuring actions. Shareholder-friendly policies are boons too. The company presently has a market capitalization of $66.8 billion and a Zacks Rank #2 (Buy). Its stock has gained 16.8% in the past three months. In the trailing four quarters, the company surpassed estimates on all occasions, the average earnings surprise being 10.87%. Also, its Zacks Consensus Estimate for earnings at $6.82 for 2021 and $7.46 for 2022 represents growth of 8.9% and 8.4% from the respective 30-day-ago figures. You can see . the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here A. O. Smith Corporation ( AOS Quick Quote AOS - Free Report) : The Milwaukee, WI-based company engages in making commercial and residential water-heating equipment as well as water-treatment products. Strengthening replacement business, sound demand in North America, and solid product offerings and innovations are aiding the company. It presently has a Zacks Rank #2 and a market capitalization of $11.5 billion. Its shares have gained 5.5% in the past three months. The company reported better-than-expected results in the trailing four quarters, the average positive earnings surprise being 17.35%. The Zacks Consensus Estimate for earnings is pegged at $2.74 for 2021 and $3.23 for 2022, representing growth of 1.9% and 4.2% from the 30-day-ago respective figures. Rexnord Corporation : The Milwaukee, WI-based company engages in manufacturing water management, and process and motion control products. Diversified businesses, benefits from acquisitions, growth in e-commerce and innovation capabilities are its strength. It presently has a Zacks Rank #2 and a market capitalization of $7.4 billion. The company’s shares have gained 23.1% in the past three months. It delivered impressive results in the trailing four quarters, beating estimates on all occasions. Its average earnings surprise is 11.96%. The Zacks Consensus Estimate for earnings is at $2.04 for 2021 and $2.36 for 2022, representing growth of 3.6% and 3.5% from the 30-day-ago respective figures. Regal Beloit Corporation : Based in Beloit, WI, the company engages in manufacturing electrical and mechanical motion-control products. Strengthening businesses in end markets, including material handling, pool pump and residential heating, ventilation and air conditioning, and cost-control measures are likely tailwinds for the company. Its shareholder-friendly policies add to its attractiveness. The company presently has a market capitalization of $6.3 billion and a Zacks Rank #2. Its stock has gained 9.1% in the past three months. In the trailing four quarters, the company surpassed estimates on all occasions, the average earnings surprise being 20.63%. Also, its Zacks Consensus Estimate for earnings pegged at $8.85 for 2021 and $9.68 for 2022 represents growth of 13% for both years from the respective 30-day-ago figures.