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Focus on Growth Strategy Aids Lincoln Electric Amid Concerns

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On Aug 27, we issued an updated research report on Lincoln Electric Holdings, Inc. (LECO - Free Report) . The company is poised to gain from its focus on product innovation, integration of the Air Liquide acquisition, along with execution of the 2020 vision and strategy. Nevertheless, raw material inflation, tariffs and a softer energy business might impede the company’s near-term growth.

Let’s illustrate the factors in detail.

Lincoln Electric to Grow on Product Launches

Lincoln Electric remains focused on commercializing innovative product and cost-cutting initiatives. The company has increased its investment in research and development, and also acquired complementary technologies to fortify its existing product line and introduce offerings, such as automation, to supplement core market growth.

Notably, its R&D and commercial teams have continued to roll out several solutions in the automation solutions market, including the latest POWER MIG 260 for light industrial applications. The company also unveiled Red Max stainless steel alloys, incorporating a proprietary surface treatment that delivers improved welding ability in semi-automatic applications. In addition, Lincoln Electric has introduced the Oerlikon brand of consumables into the North American market. This provides a long-term incremental growth opportunity, especially in downstream energy applications. Moreover, these product launches will drive growth.

Air Liquide Acquisition to Drive Growth

In July 2017, Lincoln Electric acquired Air Liquide Welding for $134 million. The acquisition contributed 5 cents to adjusted earnings per share and 16% to sales in Lincoln Electric’s second-quarter 2018 results. The company is 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. Technologies and innovation within the Air Liquide portfolio will help expand the customer base Lincoln Electric globally.

2020 Vision & Strategy

For the current year, Lincoln Electric remains well poised for growth, backed by its ongoing strategic initiatives. It continues to invest in long-term strategy for automation in support of its 2020 strategy initiatives.

Tariffs Remains a Threat

Lincoln Electric witnessed surcharges in the second quarter primarily related to the U.S. business where the recent tariffs are having the greatest impact. These surcharges are also exclusively related to the consumable side of the business where the greatest impact from steel and aluminum tariffs is prevalent.

Inflation to Dampen Margins

Raw material inflation will remain a headwind in 2018. Although Lincoln Electric continues to announce new pricing actions, incremental margins could remain choppy from quarter to quarter due to the timing of its response.

Lackluster Energy Business a Concern

Lincoln Electric’s energy business remained flat in the second quarter on a year-over-year basis. The softness was in the upstream offshore business, primarily in the international market. The company continues to expect this business to remain weak in the near future as well.

Share Price Performance

Shares of the company have outperformed the industry, over the past year. The stock has gained around 10% compared with 5% growth recorded by the industry.



Zacks Rank & Key Picks

Lincoln Electric currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the same sector are W.W. Grainger, Inc. (GWW - Free Report) , iRobot Corporation (IRBT - Free Report) and Atkore International Group Inc. (ATKR - 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 a whopping 133%, over the past year.
 
iRobot Corporation has a long-term earnings growth rate of 19.5%. The company’s shares have gained 22% in a year’s time.
 
Atkore International has a long-term earnings growth rate of 10%. The stock has rallied 67% in a year’s time.

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