Lincoln Electric Holdings, Inc. (LECO Quick QuoteLECO - Free Report) will gain from improving end-markets, acquisitions, product launches as well as execution of the 2020 vision and strategy despite the impact of the recent tariffs, raw material inflation and a stronger U.S. dollar.

 

The company also outpaced the Zacks Consensus Estimate in two of the trailing four quarters, while coming in line in one. This resulted in an average positive earnings surprise of 12.56%. The company has an estimated long-term earnings growth rate of 12.7%.

 

The company, with a market capitalization of approximately $6 billion, currently carries a Zacks Rank #3 (Hold). Below, we briefly analyze the company’s potential growth drivers and possible headwinds.

 

 

 

Investors should consider the positive trends on the estimate revision front. Analysts have been raising their estimates for Lincoln Electric, of late, painting a bright earnings picture.

 

Over the past 30 days, the Zacks Consensus Estimate for the current year inched up around 0.2%, while it has risen 0.6% for the next fiscal. The Zacks Consensus Estimate for fiscal 2018 is currently pegged at $1.21, reflecting a 30% year-over-year growth. The same metric for fiscal 2019 is pegged at $5.33, projected growth of 13% above 2018 levels.

 

 

 

Shares of the company have outperformed the industry, year to date. The stock has gained around 7% compared with the 3% rise recorded by the industry.

 

 

Lincoln Electric has a ROA of 11.6%, while the industry's ROA is 6.6%. An above-average ROA denotes that the company is generating earnings by effectively managing assets.

 

 

Lincoln Electric’s trailing 12-month ROE of 29.8% reinforces its growth potential. The company’s ROE is much higher than the ROE of 17.1% for the industry, highlighting the company’s tactical efficiency in using shareholders’ funds.

 

 

Lincoln Electric’s second-quarter adjusted earnings of $1.22 per share improved around 26% year over year. The Air Liquide Welding acquisition contributed 5 cents to adjusted earnings per share in the quarter. Total revenues jumped 26% year over year to $790 million, including a 16% benefit from acquisitions, 4.4% higher volumes, 4.9% increase in price and 0.7% from favorable foreign exchange. Strong industrial production trends and order rates drove year-over-year sales growth. 

 

 

Lincoln Electric witnessed double-digit organic sales growth in the second quarter in its three major end markets —automotive, heavy industries and general fabrication. The current sales trends signal accelerating global industrial demand this year. Additionally, the company’s focus on commercializing innovative products and cost-cutting initiatives will stoke growth. Lincoln Electric has increased its investment in research and developmentto fortify its existing product line and introduce offerings such as automation to supplement core market growth.

 

The company is also working rigorously on the Air Liquide integration activities, as the team continues to frame the business into a more efficient and successful enterprise in the region. The company has also found some technologies and innovation within the Air Liquide portfolio which will help expand Lincoln Electric’s customer base globally. 

 

The company is progressing on the consolidation of its manufacturing and distribution platforms. It has also been benefiting from procurement synergies as well as more streamlined administrative and commercial departments. It also made strong progress on streamlining commercial and back-office functions. These actions will drive Lincoln Electric’s commercial and operational excellence. 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 are likely to 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.

 

 

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

 

 

Some better-ranked stocks in the same sector are W.W. Grainger, Inc. (GWW Quick QuoteGWW - Free Report) , Actuant Corporation and Atkore International Group Inc. (ATKR Quick QuoteATKR - 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.

 

Grainger has a long-term earnings growth rate of 12.5%. Its shares have appreciated 117%, over the past year.

 

Actuant has a long-term earnings growth rate of 15.6%. The company’s shares have gained 24% in a year’s time.

 

Atkore International has a long-term earnings growth rate of 10%. The stock has rallied 54% in a year’s time.

 

 

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