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4 Industrial Stocks to Beat Estimates This Earnings Season
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Several companies in the Zacks Industrial Products sector, including major player Caterpillar (CAT - Free Report) , have reported fourth-quarter 2023 earnings results. As a widely recognized economic bellwether, Caterpillar's performance is closely monitored by investors, offering valuable insights into the sector's potential. CAT's recent report showed a notable 35.5% improvement in fourth-quarter earnings, surpassing expectations on increased demand for its energy and transportation products, and favorable price realization.
CAT's performance instills optimism in a sector grappling with cost inflation, supply-chain disruptions, labor challenges and contraction in demand due to reduced consumer spending amid high interest rates.
Per the latest Earnings Trends report, the S&P 500 companies in the Industrial Sector are likely to deliver 3.7% earnings growth for the fourth quarter of 2023 on the back of a 1.4% sales increase. Ingersoll Rand (IR - Free Report) , Lincoln Electric (LECO - Free Report) , Terex Corporation (TEX - Free Report) and RBC Bearings (RBC - Free Report) are some players that are poised to deliver an earnings beat in their upcoming releases and are expected to contribute to the above-mentioned trend.
Factors at Play During the Quarter
Per the Federal Reserve, industrial production declined 3.7% year over year in the fourth quarter. Manufacturing output dipped 2.2% for the quarter. Excluding motor vehicles and parts, factory output was down 0.3% in the fourth quarter. In December 2023, the Institute for Supply Management’s manufacturing index touched 7.4%, contracting for the fourteenth month in a row. A figure below 50 indicates a contraction in manufacturing activity. The average for the October-December period stood at 46.9%.
The New Orders Index has also been contracting for 16 consecutive months and was 47% in December. The index averaged 47% in the fourth quarter of 2023. Customers have been curbing their spending amid the ongoing uncertainty in the global economy and persisting inflationary trends. However, on a positive note, the new order index expanded in January 2024 to 52.5%.
Some industry players have recently noted that the supply-chain scenario has gradually been improving. The delivery performances of suppliers to manufacturing organizations were reported to be faster for the fifteenth straight month in December.
We expect the benefits of improving supply chains and industry participants’ ongoing pricing actions and cost-control measures to get reflected in their fourth-quarter results. Despite the contraction in the manufacturing sector, some areas such as Primary Metals, Chemical Products, Transportation Equipment, and Food, Beverage & Tobacco Products, have witnessed stable demand. Stable packaging demand for food, beverages and medicines, and the rise in e-commerce activities are also likely to have aided the performances of companies engaged in the production of packaging materials. We also expect companies engaged in manufacturing agriculture, construction and mining equipment to have benefited from improving demand in the quarter.
How to Pick Winners?
Given the large number of players operating in the industrial products space, picking the right stocks is not an easy task. But our proven model makes it fairly simple. One can shortlist with the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), which increases the odds of an earnings beat.
You can uncover the best stocks to buy or sell before they report earnings with our Earnings ESP Filter.
Earnings ESP — the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate — is our proprietary methodology for determining the stocks with maximum chances of delivering positive earnings surprises in their next announcements. Our research shows that for stocks with this perfect combination, the chances of a beat are as high as 70%.
Our Choices
We have listed four industrial stocks below that have the right mix of elements to pull off positive surprises this earnings season.
Ingersoll Rand has an Earnings ESP of +0.98% and a Zacks Rank #3 at present. The company is scheduled to release fourth-quarter 2023 earnings on Feb 15. The Zacks Consensus Estimate for IR’s fourth-quarter earnings is pegged at 76 cents, indicating 5.6% year-over-year growth. The company has a four-quarter trailing average earnings surprise of 16.14%.
Ingersoll Rand has been seeing higher orders across its product portfolio of compressors, vacuum and blowers, and power tools and lifting, which is expected to have aided the Industrial Technologies & Services unit’s performance in the quarter under review. Pricing actions and acquisition benefits bode well for the Precision & Science Technologies segment. However, the ongoing weakness in the life sciences business due to the continued softness in the oxygen concentration and biopharma end markets is anticipated to have somewhat dented the Precision & Science Technologies segment’s performance in the quarter.
Lincoln Electric currently has an Earnings ESP of +0.05% and a Zacks Rank #3. LECO is scheduled to release fourth-quarter 2023 earnings on Feb 15. The Zacks Consensus Estimate for the company’s quarterly earnings is pegged at $2.19, suggesting an increase of 12.9% from the year-ago reported figure. The company has a four-quarter trailing average earnings surprise of 4.36%.
Lincoln Electric Holdings, Inc. Price and EPS Surprise
Lincoln Electric’s quarterly performance is likely to have been aided by favorable demand in most of its end markets, as reflected in its solid order levels in the past few quarters. The company has been witnessing strong quoting activity and high backlogs for equipment systems and automation solutions. Its equipment sales have been driven by strong demand across direct and distribution channels. Robust backlog and acquisitions are also expected to have benefited the company’s quarterly performance. The Harris Products Group’s revenues have been bearing the brunt of lower volumes, reflecting weak demand. Continued weakness in the retail channel also continues to weigh on the segment’s margin. While higher costs are expected to have hurt the company’s performance in the quarter, Lincoln Electric's pricing actions are expected to have negated this impact on margins.
Terex presently has an Earnings ESP of +1.25% and a Zacks Rank #3. TEX is scheduled to release fourth-quarter 2023 earnings on Feb 8. The company has a four-quarter trailing average earnings surprise of 30.4%. The Zacks Consensus Estimate for TEX’s fourth-quarter earnings is pegged at $1.41, indicating 5.2% year-over-year growth.
Terex’s results for the quarter under review are likely to reflect the impacts of ongoing strong market demand. Also, the company ended the previous quarter with a solid backlog of $3.3 billion, which was significantly above historical levels. This is expected to have boosted its fourth-quarter revenues. Despite the anticipated challenge of higher costs in the quarter, Terex is expected to have mitigated this headwind through effective pricing strategies and cost-saving measures.
RBC Bearings has an Earnings ESP of +8.19% and a Zacks Rank #3. RBC is slated to release third-quarter fiscal 2024 earnings numbers on Feb 8, before market open. The company beat the Zacks Consensus Estimate for earnings in the trailing four quarters, the average surprise being 7.65%. The Zacks Consensus Estimate for RBC’s earnings for the quarter is pegged at $1.91, suggesting an increase of 16.5% from the year-ago reported figure.
RBC Bearings’ quarterly performance is expected to have benefited from the strength in the Aerospace/Defense and Industrial segments. Robust commercial aerospace, banking on the recovery in build rates from large original equipment manufacturers and stability in the aftermarket, has been driving the Aerospace/Defense segment. The Industrial segment has been benefiting from strength in the food and beverage, mining, energy and general industrial end markets. However, some of these gains are likely to have been offset by higher raw material costs, and selling, general and administrative expenses.
Image: Bigstock
4 Industrial Stocks to Beat Estimates This Earnings Season
Several companies in the Zacks Industrial Products sector, including major player Caterpillar (CAT - Free Report) , have reported fourth-quarter 2023 earnings results. As a widely recognized economic bellwether, Caterpillar's performance is closely monitored by investors, offering valuable insights into the sector's potential. CAT's recent report showed a notable 35.5% improvement in fourth-quarter earnings, surpassing expectations on increased demand for its energy and transportation products, and favorable price realization.
CAT's performance instills optimism in a sector grappling with cost inflation, supply-chain disruptions, labor challenges and contraction in demand due to reduced consumer spending amid high interest rates.
Per the latest Earnings Trends report, the S&P 500 companies in the Industrial Sector are likely to deliver 3.7% earnings growth for the fourth quarter of 2023 on the back of a 1.4% sales increase. Ingersoll Rand (IR - Free Report) , Lincoln Electric (LECO - Free Report) , Terex Corporation (TEX - Free Report) and RBC Bearings (RBC - Free Report) are some players that are poised to deliver an earnings beat in their upcoming releases and are expected to contribute to the above-mentioned trend.
Factors at Play During the Quarter
Per the Federal Reserve, industrial production declined 3.7% year over year in the fourth quarter. Manufacturing output dipped 2.2% for the quarter. Excluding motor vehicles and parts, factory output was down 0.3% in the fourth quarter. In December 2023, the Institute for Supply Management’s manufacturing index touched 7.4%, contracting for the fourteenth month in a row. A figure below 50 indicates a contraction in manufacturing activity. The average for the October-December period stood at 46.9%.
The New Orders Index has also been contracting for 16 consecutive months and was 47% in December. The index averaged 47% in the fourth quarter of 2023. Customers have been curbing their spending amid the ongoing uncertainty in the global economy and persisting inflationary trends. However, on a positive note, the new order index expanded in January 2024 to 52.5%.
Some industry players have recently noted that the supply-chain scenario has gradually been improving. The delivery performances of suppliers to manufacturing organizations were reported to be faster for the fifteenth straight month in December.
We expect the benefits of improving supply chains and industry participants’ ongoing pricing actions and cost-control measures to get reflected in their fourth-quarter results. Despite the contraction in the manufacturing sector, some areas such as Primary Metals, Chemical Products, Transportation Equipment, and Food, Beverage & Tobacco Products, have witnessed stable demand. Stable packaging demand for food, beverages and medicines, and the rise in e-commerce activities are also likely to have aided the performances of companies engaged in the production of packaging materials. We also expect companies engaged in manufacturing agriculture, construction and mining equipment to have benefited from improving demand in the quarter.
How to Pick Winners?
Given the large number of players operating in the industrial products space, picking the right stocks is not an easy task. But our proven model makes it fairly simple. One can shortlist with the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), which increases the odds of an earnings beat.
You can uncover the best stocks to buy or sell before they report earnings with our Earnings ESP Filter.
Earnings ESP — the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate — is our proprietary methodology for determining the stocks with maximum chances of delivering positive earnings surprises in their next announcements. Our research shows that for stocks with this perfect combination, the chances of a beat are as high as 70%.
Our Choices
We have listed four industrial stocks below that have the right mix of elements to pull off positive surprises this earnings season.
Ingersoll Rand has an Earnings ESP of +0.98% and a Zacks Rank #3 at present. The company is scheduled to release fourth-quarter 2023 earnings on Feb 15. The Zacks Consensus Estimate for IR’s fourth-quarter earnings is pegged at 76 cents, indicating 5.6% year-over-year growth. The company has a four-quarter trailing average earnings surprise of 16.14%.
Ingersoll Rand Inc. Price and EPS Surprise
Ingersoll Rand Inc. price-eps-surprise | Ingersoll Rand Inc. Quote
You can see the complete list of today’s Zacks #1 Rank stocks here.
Ingersoll Rand has been seeing higher orders across its product portfolio of compressors, vacuum and blowers, and power tools and lifting, which is expected to have aided the Industrial Technologies & Services unit’s performance in the quarter under review. Pricing actions and acquisition benefits bode well for the Precision & Science Technologies segment. However, the ongoing weakness in the life sciences business due to the continued softness in the oxygen concentration and biopharma end markets is anticipated to have somewhat dented the Precision & Science Technologies segment’s performance in the quarter.
Lincoln Electric currently has an Earnings ESP of +0.05% and a Zacks Rank #3. LECO is scheduled to release fourth-quarter 2023 earnings on Feb 15. The Zacks Consensus Estimate for the company’s quarterly earnings is pegged at $2.19, suggesting an increase of 12.9% from the year-ago reported figure. The company has a four-quarter trailing average earnings surprise of 4.36%.
Lincoln Electric Holdings, Inc. Price and EPS Surprise
Lincoln Electric Holdings, Inc. price-eps-surprise | Lincoln Electric Holdings, Inc. Quote
Lincoln Electric’s quarterly performance is likely to have been aided by favorable demand in most of its end markets, as reflected in its solid order levels in the past few quarters. The company has been witnessing strong quoting activity and high backlogs for equipment systems and automation solutions. Its equipment sales have been driven by strong demand across direct and distribution channels. Robust backlog and acquisitions are also expected to have benefited the company’s quarterly performance. The Harris Products Group’s revenues have been bearing the brunt of lower volumes, reflecting weak demand. Continued weakness in the retail channel also continues to weigh on the segment’s margin. While higher costs are expected to have hurt the company’s performance in the quarter, Lincoln Electric's pricing actions are expected to have negated this impact on margins.
Terex presently has an Earnings ESP of +1.25% and a Zacks Rank #3. TEX is scheduled to release fourth-quarter 2023 earnings on Feb 8. The company has a four-quarter trailing average earnings surprise of 30.4%. The Zacks Consensus Estimate for TEX’s fourth-quarter earnings is pegged at $1.41, indicating 5.2% year-over-year growth.
Terex Corporation Price and EPS Surprise
Terex Corporation price-eps-surprise | Terex Corporation Quote
Terex’s results for the quarter under review are likely to reflect the impacts of ongoing strong market demand. Also, the company ended the previous quarter with a solid backlog of $3.3 billion, which was significantly above historical levels. This is expected to have boosted its fourth-quarter revenues. Despite the anticipated challenge of higher costs in the quarter, Terex is expected to have mitigated this headwind through effective pricing strategies and cost-saving measures.
RBC Bearings has an Earnings ESP of +8.19% and a Zacks Rank #3. RBC is slated to release third-quarter fiscal 2024 earnings numbers on Feb 8, before market open. The company beat the Zacks Consensus Estimate for earnings in the trailing four quarters, the average surprise being 7.65%. The Zacks Consensus Estimate for RBC’s earnings for the quarter is pegged at $1.91, suggesting an increase of 16.5% from the year-ago reported figure.
RBC Bearings Incorporated Price and EPS Surprise
RBC Bearings Incorporated price-eps-surprise | RBC Bearings Incorporated Quote
RBC Bearings’ quarterly performance is expected to have benefited from the strength in the Aerospace/Defense and Industrial segments. Robust commercial aerospace, banking on the recovery in build rates from large original equipment manufacturers and stability in the aftermarket, has been driving the Aerospace/Defense segment. The Industrial segment has been benefiting from strength in the food and beverage, mining, energy and general industrial end markets. However, some of these gains are likely to have been offset by higher raw material costs, and selling, general and administrative expenses.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.