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4 Must-Watch Stocks in Gloomy Diversified Operations Industry
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Players in the Zacks Diversified Operations industry are benefiting from a recovery in the global economic conditions and manufacturing operations domestically. The pandemic-induced and non-pandemic-related product demands are strong in the safety and medical markets. Product innovations, a surge in the e-commerce businesses, and government efforts are tailwinds.
However, persistent challenges in the aviation industry as well as the pandemic-related woes in industrial markets are hurting a few players. A hike in raw material, labor and logistics costs, and supply-chain issues are prevalent headwinds for industry players. Four companies, namely Danaher Corporation (DHR - Free Report) , Carlisle Companies Incorporated (CSL - Free Report) , Raven Industries, Inc. , and Griffon Corporation (GFF - Free Report) are worth watching for now.
About the Industry
The Zacks Diversified Operations industry includes companies that operate in various end-markets, including oil & gas, industrial, electronics, power, aviation, technology, finance, healthcare, chemical, non-residential construction, and transportation. Such companies manufacture and provide equipment and solutions, including bioprocessing products, molecular testing-related products, gas and steam turbines, generators, commercial jet engines, and engineered fluid-process equipment. The industry players also provide related services to a vast customer base. In addition, a few companies offer services in the agriculture, marine and telecommunications markets, and are engaged in providing environmental and safety solutions. The diversified market operators have a vast global presence, with exposure in the United States, Japan, India, China, Canada and others.
Demand in Medical and Safety Markets and Other Tailwinds: The pandemic-induced demand for several products and equipment in the medical and safety markets is still strong for many industry players. Danaher anticipates a solid demand for bioprocessing (Cytiva and Pall Biotech) and molecular testing (Cepheid) products in the quarters ahead. Non-pandemic-related demand also seems to be gaining momentum. In addition to this, a recovery in manufacturing activities and the global economy gaining momentum are proving beneficial. It is worth mentioning here that industrial production in the United States advanced 4.3% year over year in the third quarter of 2021. The near-term setbacks due to supply-chain disruptions are discussed below. Growing online businesses and the government’s development efforts are likely to bode well for the industry.
Supply-Chain and Cost Woes: For the past few months, the industry giants have been dealing with supply-chain restrictions, especially those related to the shortage in the availability of semiconductor chips. This has hampered production activities for companies, widening the gap between product demand and supply. Further, difficulties in the availability of labor, a hike in related costs, and a surge in raw material and logistics costs are concerning.
Persistent Pandemic-Related and Other Woes: Market challenges caused by the pandemic are still concerning. Industry players with exposure in the commercial aviation markets can still feel the heat from subdued travel in international locations. Also, companies with exposure in industrial markets may find the pandemic-related restrictions in the Asia Pacific, and labor-movement problems in the Middle East and North Africa regions concerning. In addition, some players have been dealing with highly leveraged balance sheets as investments in product development have become necessary for tapping customer demand.
Zacks Industry Rank Reflects Gloomy Prospects
The Zacks Diversified Operations industry is a 20-stock group within the broader Zacks Conglomerates sector. The industry currently carries a Zacks Industry Rank #164, which places it in the bottom 35% 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 weak prospects. 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 bottom 50% of the Zacks-ranked industries is a result of weak earnings prospects for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are losing confidence in this group’s earnings growth potential. The industry’s earnings estimates for 2021 and 2022 have decreased 2.7% and 3.4%, respectively, so far in the second half of 2021.
We will present a few stocks that you may consider for your portfolio. But it is worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Underperforms S&P 500
The Zacks Diversified Operations industry’s performance has been weaker than the S&P 500 over the trailing 12 months. The stocks in the industry have collectively gained 32.7% compared with the S&P 500’s rise of 39.6%.
Past Year’s Price Performance
Diversified Operations Industry's Valuation
The EV/EBITDA ratio is commonly used for valuing companies with diversified operations.
The industry’s forward 12-month EV/EBITDA ratio is 9.56. This multiple is below the S&P 500’s 16.42.
Over the past five years, the industry has traded at the highest level of 10.42X forward 12-month EV/EBITDA and the lowest level of 5.30X. The median level was 7.36X over the same period.
Industry’s EV/EBITDA Ratio (Forward 12-Month) Versus S&P 500
Danaher: The Washington, DC-based company manufactures and supplies industrial, consumer, professional and commercial products. The healthy demand in Life Sciences, Diagnostics, and Environmental & Applied Solutions segments benefits the company, while high costs and debts ail. Its market capitalization is $218.1 billion and it currently carries a Zacks Rank #3.
The company’s shares have gained 31.5% in the past year. Its earnings surprise for the last four quarters was 24.05%, on average. Also, the company’s earnings estimates have improved 3.8% for 2021 in the past 60 days.
Price and Consensus: DHR
Carlisle: The company engages in manufacturing and providing roofing and waterproofing products, finishing equipment, engineered products, and brake as well as friction system solutions. Growth opportunities stemming from the U.S. reroofing market and medical businesses as well as its focus on product innovation and buyouts are likely to aid the company in the quarters ahead. Challenges within the Carlisle Interconnect Technologies segment are concerning. The company presently has a Zacks Rank #2 and a market capitalization of $11.7 billion.
Shares of this Scottsdale, AZ-based company have gained 85% in the past year. Its earnings surprise was 38.89%, on average, for the last four quarters. The company’s earnings estimates have improved 0.5% for 2021 in the past 60 days.
Price and Consensus: CSL
Raven: The company makes and sells products for use in the construction, agricultural, construction, defense, and other end markets. Healthy demand, technological capabilities, and gains from acquired assets are advantageous in the quarters ahead. However, global supply-chain woes are concerning. It currently has a Zacks Rank #3 and a market capitalization of $2.1 billion.
Shares of the Sioux Falls, SD-based company have gained 167.5% in the past year. Its earnings surprise for the last four quarters was 42.59%, on average. The company’s earnings estimates have been unchanged for fiscal 2022 (ending January 2022) in the past 60 days.
Price and Consensus: RAVN
Griffon: The New York-based company is primarily a management and holding company operating through its subsidiaries. Product innovation, solid manufacturing capabilities, specialized household and building products, and a surge in the e-commerce business are expected to aid the company’s performance in the quarters ahead. High costs for raw material, labor and transportation might be concerning. The company presently has a market capitalization of $1.5 billion.
Shares of this Zacks Rank #2 company have gained 17.3% in the past year. In the last four quarters, it delivered an earnings surprise of 26.02%, on average. In the past 60 days, the company’s earnings estimates have been unchanged for fiscal 2022 (ending September 2022).
Price and Consensus: GFF
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4 Must-Watch Stocks in Gloomy Diversified Operations Industry
Players in the Zacks Diversified Operations industry are benefiting from a recovery in the global economic conditions and manufacturing operations domestically. The pandemic-induced and non-pandemic-related product demands are strong in the safety and medical markets. Product innovations, a surge in the e-commerce businesses, and government efforts are tailwinds.
However, persistent challenges in the aviation industry as well as the pandemic-related woes in industrial markets are hurting a few players. A hike in raw material, labor and logistics costs, and supply-chain issues are prevalent headwinds for industry players. Four companies, namely Danaher Corporation (DHR - Free Report) , Carlisle Companies Incorporated (CSL - Free Report) , Raven Industries, Inc. , and Griffon Corporation (GFF - Free Report) are worth watching for now.
About the Industry
The Zacks Diversified Operations industry includes companies that operate in various end-markets, including oil & gas, industrial, electronics, power, aviation, technology, finance, healthcare, chemical, non-residential construction, and transportation. Such companies manufacture and provide equipment and solutions, including bioprocessing products, molecular testing-related products, gas and steam turbines, generators, commercial jet engines, and engineered fluid-process equipment. The industry players also provide related services to a vast customer base. In addition, a few companies offer services in the agriculture, marine and telecommunications markets, and are engaged in providing environmental and safety solutions. The diversified market operators have a vast global presence, with exposure in the United States, Japan, India, China, Canada and others.
What's Shaping Diversified Operations Industry's Future?
Demand in Medical and Safety Markets and Other Tailwinds: The pandemic-induced demand for several products and equipment in the medical and safety markets is still strong for many industry players. Danaher anticipates a solid demand for bioprocessing (Cytiva and Pall Biotech) and molecular testing (Cepheid) products in the quarters ahead. Non-pandemic-related demand also seems to be gaining momentum. In addition to this, a recovery in manufacturing activities and the global economy gaining momentum are proving beneficial. It is worth mentioning here that industrial production in the United States advanced 4.3% year over year in the third quarter of 2021. The near-term setbacks due to supply-chain disruptions are discussed below. Growing online businesses and the government’s development efforts are likely to bode well for the industry.
Supply-Chain and Cost Woes: For the past few months, the industry giants have been dealing with supply-chain restrictions, especially those related to the shortage in the availability of semiconductor chips. This has hampered production activities for companies, widening the gap between product demand and supply. Further, difficulties in the availability of labor, a hike in related costs, and a surge in raw material and logistics costs are concerning.
Persistent Pandemic-Related and Other Woes: Market challenges caused by the pandemic are still concerning. Industry players with exposure in the commercial aviation markets can still feel the heat from subdued travel in international locations. Also, companies with exposure in industrial markets may find the pandemic-related restrictions in the Asia Pacific, and labor-movement problems in the Middle East and North Africa regions concerning. In addition, some players have been dealing with highly leveraged balance sheets as investments in product development have become necessary for tapping customer demand.
Zacks Industry Rank Reflects Gloomy Prospects
The Zacks Diversified Operations industry is a 20-stock group within the broader Zacks Conglomerates sector. The industry currently carries a Zacks Industry Rank #164, which places it in the bottom 35% 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 weak prospects. 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 bottom 50% of the Zacks-ranked industries is a result of weak earnings prospects for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are losing confidence in this group’s earnings growth potential. The industry’s earnings estimates for 2021 and 2022 have decreased 2.7% and 3.4%, respectively, so far in the second half of 2021.
We will present a few stocks that you may consider for your portfolio. But it is worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Underperforms S&P 500
The Zacks Diversified Operations industry’s performance has been weaker than the S&P 500 over the trailing 12 months. The stocks in the industry have collectively gained 32.7% compared with the S&P 500’s rise of 39.6%.
Past Year’s Price Performance
Diversified Operations Industry's Valuation
The EV/EBITDA ratio is commonly used for valuing companies with diversified operations.
The industry’s forward 12-month EV/EBITDA ratio is 9.56. This multiple is below the S&P 500’s 16.42.
Over the past five years, the industry has traded at the highest level of 10.42X forward 12-month EV/EBITDA and the lowest level of 5.30X. The median level was 7.36X over the same period.
Industry’s EV/EBITDA Ratio (Forward 12-Month) Versus S&P 500
4 Diversified Operations Stocks Worth Watching
Below we have discussed four stocks from the industry, with a Zacks Rank #2 (Buy) or a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Danaher: The Washington, DC-based company manufactures and supplies industrial, consumer, professional and commercial products. The healthy demand in Life Sciences, Diagnostics, and Environmental & Applied Solutions segments benefits the company, while high costs and debts ail. Its market capitalization is $218.1 billion and it currently carries a Zacks Rank #3.
The company’s shares have gained 31.5% in the past year. Its earnings surprise for the last four quarters was 24.05%, on average. Also, the company’s earnings estimates have improved 3.8% for 2021 in the past 60 days.
Price and Consensus: DHR
Carlisle: The company engages in manufacturing and providing roofing and waterproofing products, finishing equipment, engineered products, and brake as well as friction system solutions. Growth opportunities stemming from the U.S. reroofing market and medical businesses as well as its focus on product innovation and buyouts are likely to aid the company in the quarters ahead. Challenges within the Carlisle Interconnect Technologies segment are concerning. The company presently has a Zacks Rank #2 and a market capitalization of $11.7 billion.
Shares of this Scottsdale, AZ-based company have gained 85% in the past year. Its earnings surprise was 38.89%, on average, for the last four quarters. The company’s earnings estimates have improved 0.5% for 2021 in the past 60 days.
Price and Consensus: CSL
Raven: The company makes and sells products for use in the construction, agricultural, construction, defense, and other end markets. Healthy demand, technological capabilities, and gains from acquired assets are advantageous in the quarters ahead. However, global supply-chain woes are concerning. It currently has a Zacks Rank #3 and a market capitalization of $2.1 billion.
Shares of the Sioux Falls, SD-based company have gained 167.5% in the past year. Its earnings surprise for the last four quarters was 42.59%, on average. The company’s earnings estimates have been unchanged for fiscal 2022 (ending January 2022) in the past 60 days.
Price and Consensus: RAVN
Griffon: The New York-based company is primarily a management and holding company operating through its subsidiaries. Product innovation, solid manufacturing capabilities, specialized household and building products, and a surge in the e-commerce business are expected to aid the company’s performance in the quarters ahead. High costs for raw material, labor and transportation might be concerning. The company presently has a market capitalization of $1.5 billion.
Shares of this Zacks Rank #2 company have gained 17.3% in the past year. In the last four quarters, it delivered an earnings surprise of 26.02%, on average. In the past 60 days, the company’s earnings estimates have been unchanged for fiscal 2022 (ending September 2022).
Price and Consensus: GFF