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Luxfer Holdings Gains From Solid Products, Tactical Efforts

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Industrial Products is currently one of the favored sectors — occupying the seventh position — among the 16 Zacks sectors.
 
Expanding industrial production, rising demand for U.S.-made machinery and government’s tax policy changes (implemented in December 2017) are favoring the sector. Moreover, healthy job market, infrastructural development and growth prospects of the U.S. economy will act as tailwinds.

Per our latest Earnings Trend report, the sector’s earnings are predicted to increase 24.2% in 2018, on revenue growth of 9.6%. For the third quarter, earnings and sales are anticipated to improve 18.4% and 7.5% year over year, respectively. Among many indicators, a few supporting the sector’s growth are discussed below:

Investors interested in gaining exposure in the sector may choose stocks that have a Zacks Rank #1 (Strong Buy) or #2 (Buy). Of many investment-friendly options, we believe that adding Luxfer Holdings PLC (LXFR - Free Report) to the portfolio will be a smart choice. The stock currently carries a Zacks Rank #2 and has a favorable VGM Score of A.

In the past three months, the company’s shares increased 18.1% as against 2.5% decline recorded by the industry it belongs to.





It’s worth noting here that Luxfer Holdings’ industry is positioned in the top 40% of more than 250 Zacks industries. 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.

Let’s delve deeper and discuss why Luxfer Holdings is a suitable investment option.

Bottom-Line Performance & Projections: Luxfer Holdings delivered better-than-expected results in three out of the last four quarters, while lagged estimates in one. Average earnings surprise is a positive 11.04%. The average includes impact of 25.71% earnings beat recorded in the second quarter of 2018. On a year-over-year basis, the company’s bottom line in the quarter surged 76% on the back of healthy segmental businesses and lower costs.

For 2018, the company predicts adjusted earnings per share of $1.35-$1.45, increasing from $1.20-$1.30 stated earlier. At the mid-point, the revised projection reflects year-over-year growth of 37.3% from the year-ago tally. The company believes that organic sales will continue to grow in the year.

Driven by solid performance and impressive outlook, the company’s earnings estimates have increased in the past 60 days. Currently, the Zack Consensus Estimate for earnings is pegged at $1.45 for 2018 and $1.68 for 2019, reflecting growth of 2.1% and 1.8% from the respective 60-day-ago tallies.

Luxfer Holdings PLC Price and Consensus
 

 

Solid Top Line: In the second quarter of 2018, Luxfer Holdings’ top line increased 20% year over year on the back of healthy growth registered by the majority of its product lines. Segmental performance was impressive in the quarter, with Elektron’s sales growing 34% and Gas Cylinders’ sales increasing 7.9%.

Focus on development of products and commercial excellence initiatives will likely boost the company’s top line in the quarters ahead. Moreover, it anticipates its addressable end markets — including highly engineered advanced materials and high-performance gas cylinders — to be worth $10 billion in the years ahead. From 2018 to 2023, the advanced material market is anticipated to grow 3-7% (CAGR) and gas cylinder market to expand 1-2% (CAGR).

The Zacks Consensus Estimate for revenues on the stock is pegged at $487.3 million for 2018 and $490.6 million for 2019, reflecting year-over-year growth of 10.4% and 0.7%, respectively.

Tactical Initiatives: Luxfer Holdings is progressing well with its transformational initiatives — including simplification, high-performance culture and talent, productivity acceleration, growth recovery, and portfolio optimization. These initiatives will enable the company to deliver double-digit earnings growth in the years ahead.

The phase 1 of the transformational initiatives started in 2017. It is due to end in 2018 while phase 2 will be carried out between 2017 and 2020, and phase 3 from 2018 onward. By 2021, the company anticipates realizing $20 million in annualized savings from the productivity acceleration initiative.

Debt Profile: Luxfer Holdings’ long-term debt at the end of the first half of 2018 was $99 million, way below $146 million recorded at the end of the second quarter of 2017. It’s worth noting here that the company’s net debt in the second quarter of 2018 stood at $93.8 million, down 9.3% from the year-ago quarter.

Further, the company’s debt profile is better compared with the industry. Its debt/equity of 54.9% is lower than the industry’s 84%.

Other Stocks to Consider

Some other top-ranked stocks in the industry are Altra Industrial Motion Corp. (AIMC - Free Report) , Kadant Inc. (KAI - Free Report) and Ingersoll-Rand plc (IR - Free Report) . While Altra Industrial sports a Zacks Rank #1, both Kadant and Ingersoll-Rand carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

In the last 60 days, earnings estimates for Altra Industrial Motion and Ingersoll-Rand improved for the current year. The current year estimate has remained stable for Kadant. Further, average positive earnings surprise for the last four quarters was 4.01% for Altra Industrial Motion, 13.95% for Kadant and 5.29% for Ingersoll-Rand.

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