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3 Stocks to Watch for in Prospering Manufacturing Tools Industry
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Players in the Zacks Manufacturing-Tools & Related Products industry have been benefiting from the recovery in manufacturing and economic activities in the United States and worldwide. A rise in the demand for home & garden, health, do-it-yourself, security and other products as well as a surge in the e-commerce business is also proving advantageous for the players.
However, the lingering impacts of the pandemic, as seen amid lockdowns in some parts of the world, are concerning. Supply-chain restrictions, high commodity costs, and labor and logistics issues are other woes impacting operations and margins. Three industry players that are worth a look in the industry at present are Stanley Black & Decker, Inc. (SWK - Free Report) , Kennametal Inc. (KMT - Free Report) , and Enerpac Tool Group Corp. (EPAC - Free Report) .
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 of the industry players provide products and services to customers in North and South America, Japan, Europe, Canada, Asia, and the Middle East.
What's Shaping the Future of Manufacturing Tools Industry?
Favorable Operating Environment: Recovery in economic and manufacturing activities in the United States and across the globe is favoring the industry players. The International Monetary Fund predicts year-over-year world output growth of 6% for 2021 and 4.9% for 2022. The same for the United States is predicted to expand 7% and 4.9% for 2021 and 2022, respectively. In addition, improving industrial production in the United States is a good sign for manufacturing players. In August 2021, the country’s industrial production expanded 5.9% from the year-ago month. Investments for the development of infrastructures in the country are beneficial.
Other Tailwinds: As a result of the pandemic, there has been a growing preference for home & garden, do-it-yourself, health, safety and home improvement products. Such a trend is beneficial for companies like Stanley Black & Decker. Also, the pandemic has spurred e-commerce businesses across the industry. For 2021, organic sales growth for the Security, and Tools & Storage segments of Stanley Black & Decker was revised upward in July.
Pandemic and Other Woes: Despite wider recoveries from the headwinds, the pandemic still has lingering impacts on some players in the industry, which is concerning. The pandemic-led lockdowns adversely impacted Enerpac Tool’s performance in fourth-quarter fiscal 2021 (ended Aug 31, 2021). This might persist in the coming quarters as well. The prevalent challenges in the supply chain, especially those related to semiconductors, are also worrisome for the industry players. Further, rising commodity, raw material, freight and labor costs can dent margins and profitability of the companies.
High Debts: The changing preferences of customers have made innovation and constant upgradation of existing products necessities for manufacturing companies. Such actions require high investments and often leave companies with a highly leveraged balance sheet. Acquisitions are sometimes funded with borrowed resources. Exiting the second quarter of 2021, the industry’s long-term debt was $2,114 million, reflecting an increase of 0.3% from the previous quarter.
Zacks Industry Rank Suggests Bright Prospects
The Manufacturing-Tools & Related Products industry is a five-stock group within the broader Zacks Industrial Products sector. The industry currently carries a Zacks Industry Rank #116, which places it in the top 46% 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 promising prospects in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries resulted from strengthening earnings prospects for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in the group’s earnings growth potential. The industry’s earnings estimates for 2021 have been increased by 32.6% in the past year, while that for 2022 have been raised by 33.7%.
Before we discuss a few stocks in the industry, let’s take a look at the industry’s shareholder returns and current valuation.
Industry Underperforms S&P 500 & Sector
The Zacks Manufacturing-Tools & Related Products industry has underperformed both the S&P 500 and the sector in the past year.
While the industry players have collectively gained 2.8%, the sector has grown 27.9%. The S&P 500 has rallied 32% in the said time frame.
One-Year Price Performance
Manufacturing-Tools & Related Products Industry's Valuation
The P/E ratio is one of the commonly used methods for valuing manufacturing tools and related product stocks.
The industry’s forward 12-month P/E ratio is 11.44. This clearly shows that the industry is trading below the S&P 500’s forward 12-month P/E ratio of 20.9 and the sector’s 19.4.
Over the past five years, the industry has traded at the highest level of 21.45X forward 12-month P/E and the lowest level of 11.44X. The median level over the same period was 16.36X.
Industry’s P/E Ratio (Forward 12-Month) Versus S&P 500
Industry’s P/E Ratio (Forward 12-Month) Versus Sector
3 ManufacturingTool Stocks Worth Keeping a Close Watch on
Below we have discussed three stocks from the industry currently carrying a Zacks Rank #2 (Buy) or a Zacks Rank #3 (Hold), which can be on investors’ watch list.
Stanley Black & Decker: The company specializes in making industrial tools (power and hand tools) and related accessories. It also provides electronic security solutions, healthcare solutions, engineered fastening systems and other services. Solid product offerings, efforts to innovate, a surge in the e-commerce business, and a shift in customer preferences for home & garden, safety, and health-related products are set to benefit the company in the quarters ahead. However, commodity price inflation is concerning. The company currently carries a Zacks Rank #2.
Shares of this New Britain, CT-based company have gained 6.4% in the past year. It reported better-than-expected results in the last four quarters, with an earnings surprise of 11.87%, on average. The company’s earnings estimates have improved by 0.3% for 2021 in the past 60 days. In the next five years, its earnings are expected to increase 12.2%.
Price and EPS: SWK
Kennametal: The company specializes in making and distributing high-speed metal cutting tools, tooling systems and wear-resistant parts. Its diversified business structure, simplification/modernization initiatives, innovation abilities and restructuring measures will likely benefit it in the quarters ahead. The current supply-chain constraints are concerning for the company. It presently carries a Zacks Rank #3.
Shares of this Latrobe, PA-based company have gained 14.9% in the past year. It reported better-than-expected results in the last four quarters, with an earnings surprise of 49.57%, on average. The company’s earnings estimates have improved by 12% for fiscal 2022 (ending June 2022) in the past 60 days. In the next five years, its earnings are expected to increase 5%.
Price and EPS: KMT
Enerpac Tool: The company engages in making industrial tools, including heavy-lifting technology solutions, hydraulic torque wrenches, branded tools, connectors for oil & gas, and others. Product development, synergistic gains from buyouts and organic growth prospects are expected to benefit it in the quarters ahead. However, supply-chain issues, raw material inflation, logistics problems and others are concerning for the company. It currently carries a Zacks Rank #3. Shares of this Menomonee Falls, WI-based company have gained 9.7% in the past year.
Price and EPS: EPAC
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3 Stocks to Watch for in Prospering Manufacturing Tools Industry
Players in the Zacks Manufacturing-Tools & Related Products industry have been benefiting from the recovery in manufacturing and economic activities in the United States and worldwide. A rise in the demand for home & garden, health, do-it-yourself, security and other products as well as a surge in the e-commerce business is also proving advantageous for the players.
However, the lingering impacts of the pandemic, as seen amid lockdowns in some parts of the world, are concerning. Supply-chain restrictions, high commodity costs, and labor and logistics issues are other woes impacting operations and margins. Three industry players that are worth a look in the industry at present are Stanley Black & Decker, Inc. (SWK - Free Report) , Kennametal Inc. (KMT - Free Report) , and Enerpac Tool Group Corp. (EPAC - Free Report) .
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 of the industry players provide products and services to customers in North and South America, Japan, Europe, Canada, Asia, and the Middle East.
What's Shaping the Future of Manufacturing Tools Industry?
Favorable Operating Environment: Recovery in economic and manufacturing activities in the United States and across the globe is favoring the industry players. The International Monetary Fund predicts year-over-year world output growth of 6% for 2021 and 4.9% for 2022. The same for the United States is predicted to expand 7% and 4.9% for 2021 and 2022, respectively. In addition, improving industrial production in the United States is a good sign for manufacturing players. In August 2021, the country’s industrial production expanded 5.9% from the year-ago month. Investments for the development of infrastructures in the country are beneficial.
Other Tailwinds: As a result of the pandemic, there has been a growing preference for home & garden, do-it-yourself, health, safety and home improvement products. Such a trend is beneficial for companies like Stanley Black & Decker. Also, the pandemic has spurred e-commerce businesses across the industry. For 2021, organic sales growth for the Security, and Tools & Storage segments of Stanley Black & Decker was revised upward in July.
Pandemic and Other Woes: Despite wider recoveries from the headwinds, the pandemic still has lingering impacts on some players in the industry, which is concerning. The pandemic-led lockdowns adversely impacted Enerpac Tool’s performance in fourth-quarter fiscal 2021 (ended Aug 31, 2021). This might persist in the coming quarters as well. The prevalent challenges in the supply chain, especially those related to semiconductors, are also worrisome for the industry players. Further, rising commodity, raw material, freight and labor costs can dent margins and profitability of the companies.
High Debts: The changing preferences of customers have made innovation and constant upgradation of existing products necessities for manufacturing companies. Such actions require high investments and often leave companies with a highly leveraged balance sheet. Acquisitions are sometimes funded with borrowed resources. Exiting the second quarter of 2021, the industry’s long-term debt was $2,114 million, reflecting an increase of 0.3% from the previous quarter.
Zacks Industry Rank Suggests Bright Prospects
The Manufacturing-Tools & Related Products industry is a five-stock group within the broader Zacks Industrial Products sector. The industry currently carries a Zacks Industry Rank #116, which places it in the top 46% 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 promising prospects in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries resulted from strengthening earnings prospects for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in the group’s earnings growth potential. The industry’s earnings estimates for 2021 have been increased by 32.6% in the past year, while that for 2022 have been raised by 33.7%.
Before we discuss a few stocks in the industry, let’s take a look at the industry’s shareholder returns and current valuation.
Industry Underperforms S&P 500 & Sector
The Zacks Manufacturing-Tools & Related Products industry has underperformed both the S&P 500 and the sector in the past year.
While the industry players have collectively gained 2.8%, the sector has grown 27.9%. The S&P 500 has rallied 32% in the said time frame.
One-Year Price Performance
Manufacturing-Tools & Related Products Industry's Valuation
The P/E ratio is one of the commonly used methods for valuing manufacturing tools and related product stocks.
The industry’s forward 12-month P/E ratio is 11.44. This clearly shows that the industry is trading below the S&P 500’s forward 12-month P/E ratio of 20.9 and the sector’s 19.4.
Over the past five years, the industry has traded at the highest level of 21.45X forward 12-month P/E and the lowest level of 11.44X. The median level over the same period was 16.36X.
Industry’s P/E Ratio (Forward 12-Month) Versus S&P 500
Industry’s P/E Ratio (Forward 12-Month) Versus Sector
3 ManufacturingTool Stocks Worth Keeping a Close Watch on
Below we have discussed three stocks from the industry currently carrying a Zacks Rank #2 (Buy) or a Zacks Rank #3 (Hold), which can be on investors’ watch list.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Stanley Black & Decker: The company specializes in making industrial tools (power and hand tools) and related accessories. It also provides electronic security solutions, healthcare solutions, engineered fastening systems and other services. Solid product offerings, efforts to innovate, a surge in the e-commerce business, and a shift in customer preferences for home & garden, safety, and health-related products are set to benefit the company in the quarters ahead. However, commodity price inflation is concerning. The company currently carries a Zacks Rank #2.
Shares of this New Britain, CT-based company have gained 6.4% in the past year. It reported better-than-expected results in the last four quarters, with an earnings surprise of 11.87%, on average. The company’s earnings estimates have improved by 0.3% for 2021 in the past 60 days. In the next five years, its earnings are expected to increase 12.2%.
Price and EPS: SWK
Kennametal: The company specializes in making and distributing high-speed metal cutting tools, tooling systems and wear-resistant parts. Its diversified business structure, simplification/modernization initiatives, innovation abilities and restructuring measures will likely benefit it in the quarters ahead. The current supply-chain constraints are concerning for the company. It presently carries a Zacks Rank #3.
Shares of this Latrobe, PA-based company have gained 14.9% in the past year. It reported better-than-expected results in the last four quarters, with an earnings surprise of 49.57%, on average. The company’s earnings estimates have improved by 12% for fiscal 2022 (ending June 2022) in the past 60 days. In the next five years, its earnings are expected to increase 5%.
Price and EPS: KMT
Enerpac Tool: The company engages in making industrial tools, including heavy-lifting technology solutions, hydraulic torque wrenches, branded tools, connectors for oil & gas, and others. Product development, synergistic gains from buyouts and organic growth prospects are expected to benefit it in the quarters ahead. However, supply-chain issues, raw material inflation, logistics problems and others are concerning for the company. It currently carries a Zacks Rank #3. Shares of this Menomonee Falls, WI-based company have gained 9.7% in the past year.
Price and EPS: EPAC