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4 Metal Fabrication Stocks to Watch Despite Industry Woes
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The Zacks Metal Products - Procurement and Fabrication industry has been witnessing a deceleration in orders of late due to subdued customer spending. The companies in the industry have been managing production levels in the wake of weak demand. Elevated input costs also continue to act as a headwind.
Amid these conditions, industry players like ESAB Corporation (ESAB - Free Report) , TriMas Corporation (TRS - Free Report) , Northwest Pipe Company (NWPX - Free Report) and GrafTech International (EAF - Free Report) are poised to benefit from their proactive cost-management actions and efforts to improve efficiency. Additionally, their continuous investments in automation and innovation are anticipated to contribute to their growth.
About the Industry
The Zacks Metal Products - Procurement and Fabrication industry primarily comprises metal processing and fabrication service providers that transform metals into metal parts, machinery or components used across various other industries. Their processes include forging, stamping, bending, forming and machining, which are used in shaping individual pieces of metal, and welding and assembling to join parts. The companies either use one of these processes or a combination of all. The most common raw materials utilized by metal fabrication companies include plate metal, formed or expanded metal, tube stock, welding wire or rod and casting. The industry players serve an array of markets, including construction, mining, aerospace and defense, automotive, agriculture, oil and gas, electronics/electrical components, industrial equipment, and general consumer.
Trends Shaping the Future of the Metal Products - Procurement and Fabrication Industry
Prolonged Weakness in Manufacturing Activities is Concerning: The Institute for Supply Management’s Manufacturing Index has languished in the contraction territory for 16 consecutive months till February 2024. March saw a slight uptick to 50.3%, but the index slipped to the contraction territory again with a 49.2% reading in April. It has decelerated since and was 46.8% in July. The average for the 12 months ended July 2024 is 48.1%. The New Orders Index has also contracted for the fourth consecutive month in July. The Index has not delivered consistent growth since the end of its 24-month expansion streak in May 2022. Companies continue to manage outputs cautiously amid ongoing weakness in orders. The industry has also been affected by supply-chain issues. Deliveries of suppliers to manufacturing organizations were slower in July for the second consecutive month. Once the situation normalizes, demand in the metal Products - Procurement and Fabrication industry’s diverse end markets will drive growth.
Pricing Actions to Combat High Costs: The industry has been experiencing significant inflation levels, including higher prices for labor, freight and fuel. The companies are witnessing labor shortages for some positions and incurring steep labor costs to meet demand. The industry players are focusing on pricing actions, cost-cutting measures, efforts to improve productivity and efficiency, and the diversification of supplier bases to mitigate some of these headwinds.
High Costs & Supply-Chain Woes Persist: The industry has been experiencing significant inflation levels, including higher prices for labor, freight and fuel. The companies are witnessing labor shortages for some positions and incurring steep labor costs to meet demand. The industry players are focusing on pricing actions, cost-cutting measures, efforts to improve productivity and efficiency, and the diversification of the supplier bases to mitigate some headwinds.
Automation & End-Market Growth to Act as Catalysts: The industry’s customer-focused approach to providing cost-effective technical solutions, automation to increase efficiency and lower labor costs, and the development of innovative products will drive growth in the days ahead. Improvements in end-use sectors, such as manufacturing, aerospace and automotive, are anticipated to benefit the metal fabrication market over the next few years. Developing countries hold promise due to rapid industrialization. This, in turn, is likely to create demand.
Zacks Industry Rank Indicates Dim Prospects
The group’s Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates tepid prospects in the near term. The Zacks Metal Products - Procurement and Fabrication industry, which is a 10-stock group within the broader Industrial Products sector, currently carries a Zacks Industry Rank #209, which places it in the bottom 17% of the 252 Zacks industries. 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.
Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group’s earnings growth potential. The industry's earnings estimates for the year have moved down 11% from that mentioned at the beginning of 2024.
Before we present a few stocks that you may want to consider for your portfolio, let us look at the industry’s recent stock-market performance and the valuation picture.
Industry Vs. Broader Market
The Zacks Metal Products - Procurement and Fabrication industry has outperformed its sector and Zacks S&P 500 composite over the past year.
Over this period, the industry has gained 28.2% compared with the sector’s growth of 13.5% and the Zacks S&P 500 composite’s rise of 23.6%.
One-Year Price Performance
Industry's Current Valuation
Based on the forward 12-month EV/EBITDA ratio, a commonly used multiple for valuing the Metal Products - Procurement and Fabrication companies, the industry is currently trading at 19.77 compared with the S&P 500’s 14.69 and the Industrial Products sector’s forward 12-month EV/EBITDA of 19.67. This is shown in the charts below.
Enterprise Value/EBITDA (EV/EBITDA) F12M Ratio
Enterprise Value/EBITDA (EV/EBITDA) F12M Ratio
Over the last five years, the industry traded as high as 24.60 and as low as 4.55, with the median at 10.51.
4 Metal Products - Procurement and Fabrication Stocks to Keep Tabs on
Northwest Pipe: The company delivered record gross profit and revenues in the Steel Pressure Pipe business were also robust in the second quarter of 2024. The segment benefitted from the strong pipeline of bidding opportunities, which is expected to remain strong for the rest of 2024. NWPX has been implementing cost reductions and improving operating efficiency, which will support margins. Rising demand for developed water sources and the pressing need to upgrade, repair and replace the aging U.S water and wastewater systems present significant opportunities. The company continues to strengthen its liquidity by repaying debt and generating strong cash flow from operations, supported by effective management of working capital. Its growth strategy remains focused on improving the Precast business to reduce the cyclicality of the Steel Pressure Pipe operations, and increasing overall margins and cash flow. The company also continues to look for growth opportunities through expansions or acquisitions. The stock has gained 16% in a month.
The Zacks Consensus Estimate for Vancouver, WA-based Northwest Pipe’s current-year earnings has moved up 20% over the past 60 days. The estimate indicates growth of 41.6% from the year-earlier reported number. NWPX has a trailing four-quarter earnings surprise of 20.2%, on average, and currently flaunts a Zacks Rank #1 (Strong Buy).
ESAB: The company entered a distribution agreement with INFRA Group in June 2024 to expand the availability of ESAB’s differentiated solutions by offering its welding and gas-control equipment to customers in Mexico. ESAB recently acquired Linde Industries Private Limited, which is a market leader in welding consumables and equipment in Bangladesh. Earlier this year, ESAB completed the acquisition of Sager S.A. and announced an agreement to acquire SUMIG. These acquisitions are faster-growing, less cyclical and higher-margin businesses that will expand its light automation, equipment, and repair and maintenance portfolio in the Americas. The company recently reported a record margin and cash flow in the second quarter of 2024. ESAB shares have gained 1.6% in the past month. ESAB has been simplifying its product lines and introducing innovative products, fueling growth and profitability. It continues to drive innovation, growth, margin expansion and higher cash flow using its ESAB Business Excellence system. The company expects continued improvements in its adjusted EBITDA and earnings per share in 2024.
The Zacks Consensus Estimate for North Bethesda, MD-based ESAB’s current-year earnings indicates year-over-year growth of 8.5%. The company has a trailing four-quarter earnings surprise of 9.8%. ESAB currently has a long-term estimated earnings growth of 11.9%. It currently carries a Zacks Rank #3 (Hold).
Price and Consensus: ESAB
GrafTech International: The demand for graphite electrodes will remain weak in the near term, reflecting the ongoing challenges in the steel industry. However, as the industry adopts the electric arc furnace method of steelmaking in line with its decarbonization efforts, the demand for graphite electrodes will surge, which bodes well for EAF. In the first quarter of 2024, the company started various initiatives to lower its cost structure and optimize its manufacturing footprint. These efforts have already led to a sequential improvement in EBITDA and earnings in the second quarter of 2024. EAF expects the actions to result in annualized cost savings of around $25 million. Investments in customer engagement and enhancing customer value proposition led to a sequential increase in sales volumes. EAF expects sales volumes to see modest year-over-year improvement in 2024. EAF’s strategic investments in operations to capitalize on demand growth for battery materials for the EV market will also aid growth. EAF shares have gained 17.3% in the past month.
The Zacks Consensus Estimate for Brooklyn Heights, OH-based GrafTech International’s earnings for fiscal 2024 has been unchanged over the past 60 days. The company has a trailing four-quarter earnings surprise of 2.61%, on average. EAF currently carries a Zacks Rank #3.
Price and Consensus: EAF
TriMas: The company’s packaging segment has rebounded from its six-quarter stint of negative organic growth and is benefitting from the gradual recovery in the consumer goods and industrial markets, and improving order intake. The Aerospace segment is poised for growth on solid backlog, order intake and operational excellence initiatives. TriMas has a strong pipeline of products and process innovation, which will sustain long-term growth. Its strategy is to accelerate growth through acquisitions, particularly in its Packaging and Aerospace platforms, backed by long-term growth and performance profiles. The company has been focusing on leveraging the TriMas Business Model, which was implemented in late 2016 to improve the performance of its businesses. TRS shares have gained 3.1% in a month.
The Zacks Consensus Estimate for Bloomfield Hills, MI-based TriMas’ fiscal 2024 earnings indicates year-over-year growth of 1.72%. The company currently carries a Zacks Rank #3.
Price and Consensus: TRS
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4 Metal Fabrication Stocks to Watch Despite Industry Woes
The Zacks Metal Products - Procurement and Fabrication industry has been witnessing a deceleration in orders of late due to subdued customer spending. The companies in the industry have been managing production levels in the wake of weak demand. Elevated input costs also continue to act as a headwind.
Amid these conditions, industry players like ESAB Corporation (ESAB - Free Report) , TriMas Corporation (TRS - Free Report) , Northwest Pipe Company (NWPX - Free Report) and GrafTech International (EAF - Free Report) are poised to benefit from their proactive cost-management actions and efforts to improve efficiency. Additionally, their continuous investments in automation and innovation are anticipated to contribute to their growth.
About the Industry
The Zacks Metal Products - Procurement and Fabrication industry primarily comprises metal processing and fabrication service providers that transform metals into metal parts, machinery or components used across various other industries. Their processes include forging, stamping, bending, forming and machining, which are used in shaping individual pieces of metal, and welding and assembling to join parts. The companies either use one of these processes or a combination of all. The most common raw materials utilized by metal fabrication companies include plate metal, formed or expanded metal, tube stock, welding wire or rod and casting. The industry players serve an array of markets, including construction, mining, aerospace and defense, automotive, agriculture, oil and gas, electronics/electrical components, industrial equipment, and general consumer.
Trends Shaping the Future of the Metal Products - Procurement and Fabrication Industry
Prolonged Weakness in Manufacturing Activities is Concerning: The Institute for Supply Management’s Manufacturing Index has languished in the contraction territory for 16 consecutive months till February 2024. March saw a slight uptick to 50.3%, but the index slipped to the contraction territory again with a 49.2% reading in April. It has decelerated since and was 46.8% in July. The average for the 12 months ended July 2024 is 48.1%. The New Orders Index has also contracted for the fourth consecutive month in July. The Index has not delivered consistent growth since the end of its 24-month expansion streak in May 2022. Companies continue to manage outputs cautiously amid ongoing weakness in orders. The industry has also been affected by supply-chain issues. Deliveries of suppliers to manufacturing organizations were slower in July for the second consecutive month. Once the situation normalizes, demand in the metal Products - Procurement and Fabrication industry’s diverse end markets will drive growth.
Pricing Actions to Combat High Costs: The industry has been experiencing significant inflation levels, including higher prices for labor, freight and fuel. The companies are witnessing labor shortages for some positions and incurring steep labor costs to meet demand. The industry players are focusing on pricing actions, cost-cutting measures, efforts to improve productivity and efficiency, and the diversification of supplier bases to mitigate some of these headwinds.
High Costs & Supply-Chain Woes Persist: The industry has been experiencing significant inflation levels, including higher prices for labor, freight and fuel. The companies are witnessing labor shortages for some positions and incurring steep labor costs to meet demand. The industry players are focusing on pricing actions, cost-cutting measures, efforts to improve productivity and efficiency, and the diversification of the supplier bases to mitigate some headwinds.
Automation & End-Market Growth to Act as Catalysts: The industry’s customer-focused approach to providing cost-effective technical solutions, automation to increase efficiency and lower labor costs, and the development of innovative products will drive growth in the days ahead. Improvements in end-use sectors, such as manufacturing, aerospace and automotive, are anticipated to benefit the metal fabrication market over the next few years. Developing countries hold promise due to rapid industrialization. This, in turn, is likely to create demand.
Zacks Industry Rank Indicates Dim Prospects
The group’s Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates tepid prospects in the near term. The Zacks Metal Products - Procurement and Fabrication industry, which is a 10-stock group within the broader Industrial Products sector, currently carries a Zacks Industry Rank #209, which places it in the bottom 17% of the 252 Zacks industries. 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.
Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group’s earnings growth potential. The industry's earnings estimates for the year have moved down 11% from that mentioned at the beginning of 2024.
Before we present a few stocks that you may want to consider for your portfolio, let us look at the industry’s recent stock-market performance and the valuation picture.
Industry Vs. Broader Market
The Zacks Metal Products - Procurement and Fabrication industry has outperformed its sector and Zacks S&P 500 composite over the past year.
Over this period, the industry has gained 28.2% compared with the sector’s growth of 13.5% and the Zacks S&P 500 composite’s rise of 23.6%.
One-Year Price Performance
Industry's Current Valuation
Based on the forward 12-month EV/EBITDA ratio, a commonly used multiple for valuing the Metal Products - Procurement and Fabrication companies, the industry is currently trading at 19.77 compared with the S&P 500’s 14.69 and the Industrial Products sector’s forward 12-month EV/EBITDA of 19.67. This is shown in the charts below.
Enterprise Value/EBITDA (EV/EBITDA) F12M Ratio
Enterprise Value/EBITDA (EV/EBITDA) F12M Ratio
Over the last five years, the industry traded as high as 24.60 and as low as 4.55, with the median at 10.51.
4 Metal Products - Procurement and Fabrication Stocks to Keep Tabs on
Northwest Pipe: The company delivered record gross profit and revenues in the Steel Pressure Pipe business were also robust in the second quarter of 2024. The segment benefitted from the strong pipeline of bidding opportunities, which is expected to remain strong for the rest of 2024. NWPX has been implementing cost reductions and improving operating efficiency, which will support margins. Rising demand for developed water sources and the pressing need to upgrade, repair and replace the aging U.S water and wastewater systems present significant opportunities. The company continues to strengthen its liquidity by repaying debt and generating strong cash flow from operations, supported by effective management of working capital. Its growth strategy remains focused on improving the Precast business to reduce the cyclicality of the Steel Pressure Pipe operations, and increasing overall margins and cash flow. The company also continues to look for growth opportunities through expansions or acquisitions. The stock has gained 16% in a month.
The Zacks Consensus Estimate for Vancouver, WA-based Northwest Pipe’s current-year earnings has moved up 20% over the past 60 days. The estimate indicates growth of 41.6% from the year-earlier reported number. NWPX has a trailing four-quarter earnings surprise of 20.2%, on average, and currently flaunts a Zacks Rank #1 (Strong Buy).
You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: NWPX
ESAB: The company entered a distribution agreement with INFRA Group in June 2024 to expand the availability of ESAB’s differentiated solutions by offering its welding and gas-control equipment to customers in Mexico. ESAB recently acquired Linde Industries Private Limited, which is a market leader in welding consumables and equipment in Bangladesh. Earlier this year, ESAB completed the acquisition of Sager S.A. and announced an agreement to acquire SUMIG. These acquisitions are faster-growing, less cyclical and higher-margin businesses that will expand its light automation, equipment, and repair and maintenance portfolio in the Americas. The company recently reported a record margin and cash flow in the second quarter of 2024. ESAB shares have gained 1.6% in the past month. ESAB has been simplifying its product lines and introducing innovative products, fueling growth and profitability. It continues to drive innovation, growth, margin expansion and higher cash flow using its ESAB Business Excellence system. The company expects continued improvements in its adjusted EBITDA and earnings per share in 2024.
The Zacks Consensus Estimate for North Bethesda, MD-based ESAB’s current-year earnings indicates year-over-year growth of 8.5%. The company has a trailing four-quarter earnings surprise of 9.8%. ESAB currently has a long-term estimated earnings growth of 11.9%. It currently carries a Zacks Rank #3 (Hold).
Price and Consensus: ESAB
GrafTech International: The demand for graphite electrodes will remain weak in the near term, reflecting the ongoing challenges in the steel industry. However, as the industry adopts the electric arc furnace method of steelmaking in line with its decarbonization efforts, the demand for graphite electrodes will surge, which bodes well for EAF. In the first quarter of 2024, the company started various initiatives to lower its cost structure and optimize its manufacturing footprint. These efforts have already led to a sequential improvement in EBITDA and earnings in the second quarter of 2024. EAF expects the actions to result in annualized cost savings of around $25 million. Investments in customer engagement and enhancing customer value proposition led to a sequential increase in sales volumes. EAF expects sales volumes to see modest year-over-year improvement in 2024. EAF’s strategic investments in operations to capitalize on demand growth for battery materials for the EV market will also aid growth. EAF shares have gained 17.3% in the past month.
The Zacks Consensus Estimate for Brooklyn Heights, OH-based GrafTech International’s earnings for fiscal 2024 has been unchanged over the past 60 days. The company has a trailing four-quarter earnings surprise of 2.61%, on average. EAF currently carries a Zacks Rank #3.
Price and Consensus: EAF
TriMas: The company’s packaging segment has rebounded from its six-quarter stint of negative organic growth and is benefitting from the gradual recovery in the consumer goods and industrial markets, and improving order intake. The Aerospace segment is poised for growth on solid backlog, order intake and operational excellence initiatives. TriMas has a strong pipeline of products and process innovation, which will sustain long-term growth. Its strategy is to accelerate growth through acquisitions, particularly in its Packaging and Aerospace platforms, backed by long-term growth and performance profiles. The company has been focusing on leveraging the TriMas Business Model, which was implemented in late 2016 to improve the performance of its businesses. TRS shares have gained 3.1% in a month.
The Zacks Consensus Estimate for Bloomfield Hills, MI-based TriMas’ fiscal 2024 earnings indicates year-over-year growth of 1.72%. The company currently carries a Zacks Rank #3.
Price and Consensus: TRS