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Zacks Industry Outlook Highlights Lincoln Electric and Kennametal

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For Immediate Release

Chicago, IL – March 29, 2023 – Today, Zacks Equity Research discusses Lincoln Electric (LECO - Free Report) and Kennametal (KMT - Free Report) .

Industry: Manufacturing


Continued slowdown in manufacturing activities and contraction in new orders are weighing on the Zacks Manufacturing-Tools & Related Products industry. Supply chain disruptions and a dearth of skilled workers are the other headwinds for the industry in the near term. Raw material cost inflation is denting margin performance of these companies.

Despite the downsides, recent signs of improvement in the demand scenario should aid companies like Lincoln Electric and Kennametal.

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. Talking about 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

Weakness in the Manufacturing Sector: Continued slowdown in the manufacturing sector indicates a softer demand environment for the industry participants in the near term. Per the Institute for Supply Management (ISM) report, in February, the manufacturing index touched 47.7%, reflecting contraction in manufacturing activities for the third month in a row. The reading is however 0.3 percentage point higher than that recorded in January. A figure less than 50 indicates contraction in manufacturing activities.

While the New Orders Index increased 4.5 percentage points from the January reading, it remained in contraction territory at 47%. However, the slower contraction in new orders index and manufacturing activities points to an improvement in the demand scene.

Supply Chain & Cost Woes: Despite the situation improving, supply chain constraints, mainly related to the availability of semiconductor chips, continue to be a major challenge for industry participants. Amid growing inflation, high raw material costs are squeezing margins and hurting the bottom lines of these companies. Shortage of skilled workers has also been a persistent problem for the industry.

Investments in Product Development & Innovation: The industry participants’ constant focus on innovation, product upgrades and development of new products to stay competitive in the market should drive growth. The industry participants’ focus on expanding product offerings, geographical reach and customer base through strategic acquisitions should continue to boost their top lines.

Zacks Industry Rank Suggests Bleak Prospects

The Zacks Manufacturing-Tools & Related Products industry, housed within the broader Zacks Industrial Products sector, currently carries a Zacks Industry Rank #231. This rank places it in the bottom 8% 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 2023 have been revised downward by 66.1% over the past year.

Despite the bleak near-term prospects, we will present a few stocks that you may want to retain in your portfolios. But it is worth taking a look at the industry’s shareholder returns and its current valuation first.

Industry Underperforms S&P 500 & Sector

The Zacks Manufacturing-Tools & Related Products industry has underperformed both the S&P 500 composite index and the sector in the past year.

Over this period, the industry has declined approximately 30%, compared with the sector and the S&P 500 index’s decrease of 9% and 15.2%, respectively.

Industry's Current Valuation

On the basis of forward P/E (F12M), which is a commonly used multiple for valuing manufacturing tools and related product stocks, the industry is currently trading at 21.53X compared with the S&P 500’s 17.83X. It is also below the sector’s P/E (F12M) ratio of 15.47X.

Over the past five years, the industry has traded as high as 25.06X, as low as 10.98X and at the median of 15.82X.

2 Manufacturing Tool Stocks to Keep a Tab On

Both the stocks mentioned below carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Lincoln Electric: Headquartered in Cleveland, OH, Lincoln Electric is a manufacturer and reseller of welding and cutting products. Improving order rates across end-market sectors, strong quoting activity and record backlogs for equipment systems and automation solutions augur well for LECO’s growth.

Lincoln Electric has a stellar earnings surprise history having outperformed the Zacks Consensus Estimate in each of the preceding four quarters, the average beat being 11.1%. The stock has surged around 27% in the past six months.

Kennametal: Based in Latrobe, PA, Kennametal is a manufacturer, marketer and distributor of high-speed metal cutting tools, tooling systems and wear-resistant parts. The company is poised to benefit from strength in the general engineering, transportation, aerospace and energy end markets as well as continued focus on operational excellence initiatives.

Kennametal has an impressive earnings surprise history having outperformed the Zacks Consensus Estimate in three of the preceding four quarters, while missing in one. The average beat was 9.8%. The stock has rallied approximately 21% in the past six months.

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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 for information about the performance numbers displayed in this press release.

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