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Reasons to Retain Lincoln Electric (LECO) in Your Portfolio

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Lincoln Electric Holdings, Inc. (LECO - Free Report) has been witnessing upward revisions for the past 60 days. The Zacks Consensus Estimate for earnings has inched up 0.4% to $4.74 for 2018 and 1% to $5.31 for 2019. A positive trend in estimate revisions reflects investors’ optimism in the company’s bright prospects.

Lincoln Electric also outpaced the Zacks Consensus Estimate in three out of the trailing four quarters, delivering an average positive earnings surprise of 2.56%.

The company, with a market capitalization of approximately $6.1 billion, currently carries a Zacks Rank #3 (Hold).

Below, we briefly discuss the company’s potential growth drivers and possible headwinds.

Factors Favoring Lincoln Electric

Price Performance

Shares of the company have outperformed the industry, year to date. The stock has gained around 2% compared with the 13% loss recorded by the industry during the same time period.


Return on Assets (ROA)

Lincoln Electric, currently, has a ROA of nearly 11%, while the industry's ROA is 6%. An above-average ROA denotes that the company is generating earnings by effectively managing assets.

Return on Equity (ROE)

Lincoln Electric’s trailing 12-month ROE of 29% reinforces its growth potential. The company’s ROE is higher than the ROE of 16% for the industry, highlighting the company’s tactical efficiency in using shareholders’ funds.

Growth Drivers in Place

Lincoln Electric achieved solid growth momentum in first-quarter 2018 as most end-markets continued to expand, including the company’s two largest sectors — heavy industries and general fabrication — which grew at a double-digit pace. The company expects to benefit from improved end-sector demand and expects to generate mid-to-high single-digit percent organic sales growth in 2018.

Notably, Lincoln Electric’s end-markets continue to improve which will aid the company’s performance as around 95% of its revenues are exposed to end-sector applications. The current sales trends signal accelerating global industrial demand in 2018. Additionally, its focus on commercializing innovative product and cost-cutting initiatives will stoke growth. Lincoln Electric’s global pricing actions and productivity initiatives will offset inflationary pressures.

Further, the company remains well positioned for accelerated growth in 2018, aided by ongoing strategic initiatives. Moreover, Lincoln Electric is poised to gain from focus on acquisitions and execution of the 2020 vision and strategy.


Raw material inflation will remain a headwind for Lincoln Electric in 2018. Even though the company continues to announce new pricing actions, incremental margins could be choppy from quarter to quarter due to the timing of its response. Further, increased investments in product development and higher year-over-year R&D spending will impede margins in the near term. A stronger U.S. dollar will also affect the company’s exports.

Bottom Line

Investors might want to hold on to the stock, at present, as it has ample prospects of outperforming peers in the near future.

Stocks to Consider

Some better-ranked stocks in the same sector are Axon Enterprise, Inc (AAXN - Free Report) , Caterpillar Inc. (CAT - Free Report) and Terex Corporation (TEX - Free Report) . All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Axon Enterprise has a long-term earnings growth rate of 25%. Its shares have appreciated 161%, over the past year.

Caterpillar has a long-term earnings growth rate of 13.3%. The company’s shares have been up 48%, in the past year.

Terex has a long-term earnings growth rate of 21%. The stock has gained 15% in a year’s time.

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