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Zacks Industry Outlook Highlights Lincoln Electric, Kennametal and Enerpac Tool Group
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For Immediate Release
Chicago, IL – June 17, 2022 – Today, Zacks Equity Research discusses Lincoln Electric Holdings, Inc. (LECO - Free Report) , Kennametal Inc. (KMT - Free Report) and Enerpac Tool Group Corp. (EPAC - Free Report) .
The Zacks Manufacturing-Tools & Related Products industry stands to benefit from growth in economic and manufacturing activities in the country. Also, improvement in trade activities throughout the world is boosting the prospects of the industry participants.
However, supply-chain disruptions related to the availability of semiconductor chips are expected to adversely impact its performance in the quarters ahead. High labor and raw material costs, along with logistic issues, remain concerning as well. Three industry players that are worth watching in the industry at present are Lincoln Electric Holdings, Inc., Kennametal Inc. and Enerpac Tool Group Corp.
About the Industry
The Zacks Manufacturing-Tools & Related Products industry comprises companies that develop and distribute hand and mechanics tools, hydraulic tools, engineered fastening systems and heavy-lifting technology solutions. Arc-welding products, robotic-welding packages, fume-extraction equipment, oxy-fuel cutting equipment, plasma cutters, healthcare solutions, electronic security solutions and other products are also produced by some tool-makers.
The highly advanced tools are used in industrial, commercial, oil & gas, mining, automotive and other industries. The providers of electronic security solutions cater to commercial, retailers, government, financial and healthcare markets. Regarding international operations, some industry players provide products and services to customers in North and South America, Japan, Europe, Canada, Asia and the Middle East.
3 Trends Shaping the Future of the Manufacturing Tools Industry
Favorable Operating Environment: The industry has been benefiting from a consistent rise in manufacturing activities, supported by growth in domestic and export orders for industrial products. The ISM's manufacturing index registered 56.1% in May 2022, indicating expansion of the U.S. manufacturing activity for the 24th month in a row.
Also, the digitalization of business operations has enabled industry participants to boost their competitiveness with enhanced operational productivity, product quality and lower costs. A surge in the e-commerce business has proved beneficial for the companies.
Prevalent Supply and Cost Concerns: The industry participants have been experiencing supply-chain disruptions and inflation in raw materials, which have been weighing on their margins and profitability. For Kennametal, issues related to the availability of semiconductor chips have limited growth opportunities in the transportation markets.
Logistic problems and rising freight charges remain concerning for the players. The shortage of skilled workers in the United States has been a perennial concern as well for the industry participants.
Persistent Woes: The fresh imposition of pandemic-related restrictions in some parts of the world, owing to the pandemic, has raised concerns for industry players as it might adversely impact their customers' spending. The pandemic-led restrictions remain concerning for Enerpac Tool in the Americas/Europe region.
Such issues might persist in the coming quarters as well. Innovation plays an important role in the industry. The industry participants often make steady investments to upgrade products and services to stay competitive in the market. However, these frequent investments hurt the margins and profitability of the companies.
Also, the industry players often rely on acquisitions to expand product portfolio, boost technological capabilities and extend geographical presence. Such actions often leave many companies with a highly leveraged balance sheet.
Zacks Industry Rank Suggests Bleak Prospects
The Manufacturing-Tools & Related Products industry is a six-stock group within the broader Zacks Industrial Products sector. The industry currently carries a Zacks Industry Rank #224, which places it in the bottom 11% of more than 250 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 in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry's positioning in the bottom 50% of the Zacks-ranked industries resulted from weak earnings prospects for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in the group's earnings growth potential. The industry's earnings estimates for 2022 have been decreased by 12.1% over the past year, while that for 2023 have been lowered by 10%.
Before we discuss a few stocks in the industry, let's take a look at the industry's shareholder returns and current valuation.
Industry Underperforms S&P 500 & Sector
The Zacks Manufacturing-Tools & Related Products industry has underperformed both the S&P 500 and the sector in the past year.
While the industry players have collectively declined 38%, the sector has lost 22%, while the S&P 500 has fallen 12.2% in the said time frame.
Manufacturing-Tools & Related Products Industry's Valuation
The P/E ratio is one of the commonly used methods for valuing manufacturing tools and related product stocks.
The industry's forward 12-month P/E ratio is 8.24. This clearly shows that the industry is trading below the S&P 500's ratio of 15.95 and the sector's 14.17.
Over the past five years, the industry has traded at the highest level of 21.45X forward 12-month P/E and the lowest level of 8.24X. The median level over the same period was 15.28X.
Lincoln Electric: The Cleveland, OH-based company makes welding and cutting products for use in several industries, including petrochemical, transportation and fabrication. It is likely to benefit from innovative product offerings, synergistic gains from buyouts, strengthening end markets and the use of digital platforms in the quarters ahead. However, supply-chain woes, raw material and labor cost inflation and the pandemic-led issues remain concerning.
Shares of this a Zacks Rank #2 company have gained 3.4% in the past year. It delivered better-than-expected results in the last four quarters, with an average of 12.1%. In the past 60 days, LECO's earnings estimates have moved up 10.9% for 2022.
Kennametal: Based in Latrobe, PA, Kennametal Inc. is a manufacturer, marketer and distributor of high-speed metal cutting tools, tooling systems and wear-resistant parts. The company is likely to benefit from strong product offerings, innovation capabilities and a diversified business structure in the quarters ahead. However, supply-chain issues, commodity price inflation, currency issues and a hike in other costs are concerning.
Shares of the Zacks Rank #3 company have lost 26.2% in the past year. It reported better-than-expected results thrice in the last four quarters, with an earnings surprise of 13.6%, on average. KMT's earnings estimates have declined 4.5% for fiscal 2022 (ending June 2022) in the past 60 days.
Enerpac Tool: The company engages in the designing, manufacturing and distribution of various industrial tools, including high-pressure hydraulic tools and controlled force products. It is poised to benefit from strengthening end markets, its focus on rental and value-added services and product development initiatives in the quarters ahead. However, EPAC is exposed to headwinds from supply-chain restrictions, logistics issues and cost inflation.
Shares of this Menomonee Falls, WI-based company have lost 23.9% in the past year. It delivered better-than-expected results twice and missed estimates twice in the last four quarters, with an average of 15%. In the past 60 days, the Zacks Rank #3 company's earnings estimates have been stable for fiscal 2022 (ending August 2022).
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Highlights Lincoln Electric, Kennametal and Enerpac Tool Group
For Immediate Release
Chicago, IL – June 17, 2022 – Today, Zacks Equity Research discusses Lincoln Electric Holdings, Inc. (LECO - Free Report) , Kennametal Inc. (KMT - Free Report) and Enerpac Tool Group Corp. (EPAC - Free Report) .
Industry: Manufacturing Tools
Link: https://www.zacks.com/commentary/1939684/3-manufacturing-tools-stocks-to-watch-amid-industry-challenges
The Zacks Manufacturing-Tools & Related Products industry stands to benefit from growth in economic and manufacturing activities in the country. Also, improvement in trade activities throughout the world is boosting the prospects of the industry participants.
However, supply-chain disruptions related to the availability of semiconductor chips are expected to adversely impact its performance in the quarters ahead. High labor and raw material costs, along with logistic issues, remain concerning as well. Three industry players that are worth watching in the industry at present are Lincoln Electric Holdings, Inc., Kennametal Inc. and Enerpac Tool Group Corp.
About the Industry
The Zacks Manufacturing-Tools & Related Products industry comprises companies that develop and distribute hand and mechanics tools, hydraulic tools, engineered fastening systems and heavy-lifting technology solutions. Arc-welding products, robotic-welding packages, fume-extraction equipment, oxy-fuel cutting equipment, plasma cutters, healthcare solutions, electronic security solutions and other products are also produced by some tool-makers.
The highly advanced tools are used in industrial, commercial, oil & gas, mining, automotive and other industries. The providers of electronic security solutions cater to commercial, retailers, government, financial and healthcare markets. Regarding international operations, some industry players provide products and services to customers in North and South America, Japan, Europe, Canada, Asia and the Middle East.
3 Trends Shaping the Future of the Manufacturing Tools Industry
Favorable Operating Environment: The industry has been benefiting from a consistent rise in manufacturing activities, supported by growth in domestic and export orders for industrial products. The ISM's manufacturing index registered 56.1% in May 2022, indicating expansion of the U.S. manufacturing activity for the 24th month in a row.
Also, the digitalization of business operations has enabled industry participants to boost their competitiveness with enhanced operational productivity, product quality and lower costs. A surge in the e-commerce business has proved beneficial for the companies.
Prevalent Supply and Cost Concerns: The industry participants have been experiencing supply-chain disruptions and inflation in raw materials, which have been weighing on their margins and profitability. For Kennametal, issues related to the availability of semiconductor chips have limited growth opportunities in the transportation markets.
Logistic problems and rising freight charges remain concerning for the players. The shortage of skilled workers in the United States has been a perennial concern as well for the industry participants.
Persistent Woes: The fresh imposition of pandemic-related restrictions in some parts of the world, owing to the pandemic, has raised concerns for industry players as it might adversely impact their customers' spending. The pandemic-led restrictions remain concerning for Enerpac Tool in the Americas/Europe region.
Such issues might persist in the coming quarters as well. Innovation plays an important role in the industry. The industry participants often make steady investments to upgrade products and services to stay competitive in the market. However, these frequent investments hurt the margins and profitability of the companies.
Also, the industry players often rely on acquisitions to expand product portfolio, boost technological capabilities and extend geographical presence. Such actions often leave many companies with a highly leveraged balance sheet.
Zacks Industry Rank Suggests Bleak Prospects
The Manufacturing-Tools & Related Products industry is a six-stock group within the broader Zacks Industrial Products sector. The industry currently carries a Zacks Industry Rank #224, which places it in the bottom 11% of more than 250 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 in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry's positioning in the bottom 50% of the Zacks-ranked industries resulted from weak earnings prospects for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in the group's earnings growth potential. The industry's earnings estimates for 2022 have been decreased by 12.1% over the past year, while that for 2023 have been lowered by 10%.
Before we discuss a few stocks in the industry, let's take a look at the industry's shareholder returns and current valuation.
Industry Underperforms S&P 500 & Sector
The Zacks Manufacturing-Tools & Related Products industry has underperformed both the S&P 500 and the sector in the past year.
While the industry players have collectively declined 38%, the sector has lost 22%, while the S&P 500 has fallen 12.2% in the said time frame.
Manufacturing-Tools & Related Products Industry's Valuation
The P/E ratio is one of the commonly used methods for valuing manufacturing tools and related product stocks.
The industry's forward 12-month P/E ratio is 8.24. This clearly shows that the industry is trading below the S&P 500's ratio of 15.95 and the sector's 14.17.
Over the past five years, the industry has traded at the highest level of 21.45X forward 12-month P/E and the lowest level of 8.24X. The median level over the same period was 15.28X.
3 Manufacturing Tool Stocks Worth Watching
Below we have discussed three stocks from the industry currently carrying either a Zacks Rank #2 (Buy) or #3 (Hold), which can be on investors' watch list. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Lincoln Electric: The Cleveland, OH-based company makes welding and cutting products for use in several industries, including petrochemical, transportation and fabrication. It is likely to benefit from innovative product offerings, synergistic gains from buyouts, strengthening end markets and the use of digital platforms in the quarters ahead. However, supply-chain woes, raw material and labor cost inflation and the pandemic-led issues remain concerning.
Shares of this a Zacks Rank #2 company have gained 3.4% in the past year. It delivered better-than-expected results in the last four quarters, with an average of 12.1%. In the past 60 days, LECO's earnings estimates have moved up 10.9% for 2022.
Kennametal: Based in Latrobe, PA, Kennametal Inc. is a manufacturer, marketer and distributor of high-speed metal cutting tools, tooling systems and wear-resistant parts. The company is likely to benefit from strong product offerings, innovation capabilities and a diversified business structure in the quarters ahead. However, supply-chain issues, commodity price inflation, currency issues and a hike in other costs are concerning.
Shares of the Zacks Rank #3 company have lost 26.2% in the past year. It reported better-than-expected results thrice in the last four quarters, with an earnings surprise of 13.6%, on average. KMT's earnings estimates have declined 4.5% for fiscal 2022 (ending June 2022) in the past 60 days.
Enerpac Tool: The company engages in the designing, manufacturing and distribution of various industrial tools, including high-pressure hydraulic tools and controlled force products. It is poised to benefit from strengthening end markets, its focus on rental and value-added services and product development initiatives in the quarters ahead. However, EPAC is exposed to headwinds from supply-chain restrictions, logistics issues and cost inflation.
Shares of this Menomonee Falls, WI-based company have lost 23.9% in the past year. It delivered better-than-expected results twice and missed estimates twice in the last four quarters, with an average of 15%. In the past 60 days, the Zacks Rank #3 company's earnings estimates have been stable for fiscal 2022 (ending August 2022).
Why Haven't You Looked at Zacks' Top Stocks?
Our 5 best-performing strategies have blown away the S&P's impressive +28.8% gain in 2021. Amazingly, they soared +40.3%, +48.2%, +67.6%, +94.4%, and +95.3%. Today you can access their live picks without cost or obligation.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.