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The Zacks Manufacturing - Construction and Mining industry faces challenges due to the ongoing contraction in manufacturing activities and a decline in orders due to low customer spending. Elevated input costs pose concerns.
Increased infrastructure investment in the United States and demand from the mining sector, driven by the energy transition trend, are expected to buoy the industry. Caterpillar Inc., Hitachi Construction Machinery, Terex and Hyster-Yale, Inc. are poised to benefit from these trends. The players’ emphasis on introducing technologically advanced products, productivity and efficiency enhancements will aid growth.
Industry Description
The Zacks Manufacturing - Construction and Mining industry comprises companies that manufacture and sell construction, mining and utility equipment. They support customers using machinery in the construction of commercial, institutional and residential buildings, and infrastructure projects.
Their equipment is also utilized in underground mining, drilling, mineral processing, and surface mining to extract and haul copper, iron ore, coal, oil sands, aggregates, gold, and other minerals and ores. Their products are varied, including loaders, pavers, dozers, excavators, concrete mixer trucks, crushing, pulverizing and screening equipment, tractors, and cranes. Industry participants support oil and gas, power generation, marine, rail and industrial applications through their reciprocating engines, generator sets, gas turbines and turbine-related services.
Trends Shaping the Future of the Manufacturing - Construction and Mining Industry
Prolonged Weakness in Manufacturing Activity 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. As the situation returns to normalcy, diverse end-market demand will drive the industry’s growth.
Energy Transition Trend, Construction Spending to Aid the Industry: The intensifying global focus on shifting from fossil fuels to zero emissions will require a large number of commodities, which, in turn, will support mining equipment demand in the years to come. The U.S. government's plans to increase investment in infrastructure construction, particularly in critical subsectors, such as transportation, water and sewerage, and telecommunications, should support demand in the coming years.
Higher Pricing, Cost Cuts to Boost Margins: The industry is facing input cost inflation, and transport and logistic costs. Industry players are focusing on pricing actions and efforts to improve productivity and efficiency. They are constantly implementing cost-reduction actions, which are likely to help sustain margins in this scenario. The companies are focused on streamlining their operations and realigning around high-growth key markets or customer segments to enhance their performances.
Investments in Digital Initiatives Act as a Key Catalyst: Industry participants are investing in digital initiatives like AI, cloud computing, advanced analytics and robotics. Digital transformation aids organizations in boosting productivity and increasing efficiency, reliability and safety, thereby enriching customer satisfaction. With the pressing need to cut carbon emissions, companies worldwide are relying more on autonomous machinery. Thus, players in the industry are stepping up their research and technological capabilities to bring products equipped with the latest technology into the market.
Zacks Industry Rank Indicates Weak Prospects
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dim prospects in the near term. The Zacks Manufacturing - Construction and Mining industry, which is part of the broader Zacks Industrial Products Sector currently, carries a Zacks Industry Rank #234, which places it at the bottom 7% of 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.
Before we present a few stocks that you may want to consider for your portfolio, let us take a look at the industry’s recent stock-market performance and valuation picture.
Industry Versus Broader Market
The Manufacturing - Construction and Mining industry has underperformed the Zacks S&P 500 composite and its sector over the past year.
Over this period, the industry has risen 23.3% compared with the sector’s growth of 16.6%. The Zacks S&P 500 composite has moved up 27.5%.
Industry's Current Valuation
The forward 12-month EV/EBITDA ratio, a commonly used multiple for valuing Manufacturing, Construction and Mining companies, shows that the industry is currently trading at 10.10 compared with the S&P 500’s 14.53 and the Industrial Products sector’s forward 12-month EV/EBITDA of 19.18.
Over the last five years, the industry traded as high as 14.37 and as low as 7.04, with a median of 10.20.
4 Manufacturing - Construction & Mining Stocks to Watch
Caterpillar: The company has delivered 14 consecutive quarters of earnings growth, fueled by cost-saving actions, strong end-market demand and pricing actions. CAT ended the second quarter of 2024 with an impressive backlog of $28.6 billion, which will support the company’s top line in the upcoming quarters.
Also, solid long-term demand prospects, backed by infrastructure spending and energy-transition trends, as well as CAT’s focus on growing service revenues, should help it maintain an upbeat performance. The company’s investment in areas of expanding offerings and services, and digital initiatives like e-commerce, sustainability and electrification will drive long-term growth. The stock has gained 26.4% in the past year.
Caterpillar is the largest global construction and mining equipment manufacturer. The Zacks Consensus Estimate for CAT’s 2024 earnings indicates year-over-year growth of 2.9%. Earnings estimates have moved up 1% over the past 30 days. Caterpillar has a trailing four-quarter earnings surprise of around 11%, on average. CAT has an estimated long-term earnings growth rate of 9.8%. The company currently carries a Zacks Rank #3 (Hold).
Hitachi Construction Machinery: HTCMY aims to achieve revenues of more than 300 billion JPY in fiscal 2025 from independent business expansion in the Americas alone. Other core strategies of the plan include delivering innovative solutions for customer needs and enhancing value chain business.
The company is, thus, strengthening its focus on value-chain businesses other than new machinery sales, such as parts and services, rentals, used equipment, and parts recycling. Plus, it is utilizing digital technologies to provide solutions at all points of contact with customers. The company plans to begin full-scale production of dump trucks in fiscal 2026, aiming to capitalize on strong demand in the market.
Notably, the Americas (North, Central and South America) account for approximately 40% of the global markets for dump trucks of more than 150 tons. This aligns with one of HTCMY’s core strategies of “expanding business in the Americas” under its medium-term management plan “BUILDING THE FUTURE 2025.”
Headquartered in Tokyo, Japan, Hitachi Construction Machinery and its subsidiaries engage in the development, manufacturing, sales and service operations of hydraulic excavators, wheel loaders, road construction machines and mining machinery worldwide. The Zacks Consensus Estimate for HTCMY’s current-year earnings has been unchanged over the past 30 days and indicates year-over-year growth of 5.3%. Hitachi currently carries a Zacks Rank #3.
Terex: The company is progressing well on its “Execute, Innovate, Grow" strategy, which should drive growth. Per the “Execute” theme, the company has been working on improving margins through cost-reduction initiatives. It is also ramping up its production plant in Monterrey, Mexico to improve cost competitiveness.
The “Innovate” theme seeks to continuously develop its product offerings, applying technology to improve operational efficiency, and investing in robotics and electrification. The “Grow” aspect focuses on increasing the company’s footprint in new geographies and segments, and adding scope through acquisitions.
In line with this, Terex recently announced an agreement to purchase Environmental Solutions Group. It will be accretive to TEX’s earnings and increase its presence in the fast-growing waste and recycling end market.
Norwalk, CT-based Terex manufactures and sells aerial work platforms and material processing machinery worldwide. The Zacks Consensus Estimate for 2024 earnings indicates year-over-year growth of 2%. Earnings estimates have moved north by 2% over the past 30 days. TEX has a trailing four-quarter earnings surprise of 7%, on average, and an estimated long-term earnings growth rate of 2%. The company currently carries a Zacks Rank #3.
Hyster-Yale: The combination of rising market share, new bookings and a backlog of $2.6 billion (equivalent to six to seven months of revenues at the current quarterly run rate) is expected to support the company’s Lift truck business in the forthcoming quarters. The company expects continued year-over-year revenue growth and strong product margins in the second half of 2024 as higher-priced, higher-margin backlog units are shipped.
Meanwhile, Bolzoni’s shift toward the production of higher-margin attachments and phasing out lower-margin legacy component sales to the Lift Truck business should boost HY’s product margins. Nuvera remains focused on increasing customer product demonstrations and customer orders.
Shipments are expected to increase in the second half of the year, reflecting the current trend in customer orders and anticipated orders for Nuvera's portable generator, which was introduced in May 2024. HY continues to focus on reducing financial leverage and making substantial investments while improving its cash flow.
Cleveland, OH-based Hyster-Yale designs, engineers, manufactures, sells and services a line of lift trucks, attachments and aftermarket parts worldwide. The Zacks Consensus Estimate for the company’s 2024 earnings indicates year-over-year growth of 2%. Earnings estimates have been unchanged over the past 30 days. HY currently has a trailing four-quarter earnings surprise of 30.6% and a Zacks Rank #3.
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Today you can access their live picks without cost or obligation.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Highlights Caterpillar, Hitachi Construction Machinery, Terex and Hyster-Yale
For Immediate Release
Chicago, IL – August 21, 2024 – Today, Zacks Equity Research discusses Caterpillar Inc. (CAT - Free Report) , Hitachi Construction Machinery (HTCMY - Free Report) , Terex (TEX - Free Report) and Hyster-Yale, Inc. (HY - Free Report) .
Industry: Construction and Mining
Link: https://www.zacks.com/commentary/2324445/4-construction-mining-equipment-stocks-to-watch-despite-industry-headwinds
The Zacks Manufacturing - Construction and Mining industry faces challenges due to the ongoing contraction in manufacturing activities and a decline in orders due to low customer spending. Elevated input costs pose concerns.
Increased infrastructure investment in the United States and demand from the mining sector, driven by the energy transition trend, are expected to buoy the industry. Caterpillar Inc., Hitachi Construction Machinery, Terex and Hyster-Yale, Inc. are poised to benefit from these trends. The players’ emphasis on introducing technologically advanced products, productivity and efficiency enhancements will aid growth.
Industry Description
The Zacks Manufacturing - Construction and Mining industry comprises companies that manufacture and sell construction, mining and utility equipment. They support customers using machinery in the construction of commercial, institutional and residential buildings, and infrastructure projects.
Their equipment is also utilized in underground mining, drilling, mineral processing, and surface mining to extract and haul copper, iron ore, coal, oil sands, aggregates, gold, and other minerals and ores. Their products are varied, including loaders, pavers, dozers, excavators, concrete mixer trucks, crushing, pulverizing and screening equipment, tractors, and cranes. Industry participants support oil and gas, power generation, marine, rail and industrial applications through their reciprocating engines, generator sets, gas turbines and turbine-related services.
Trends Shaping the Future of the Manufacturing - Construction and Mining Industry
Prolonged Weakness in Manufacturing Activity 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. As the situation returns to normalcy, diverse end-market demand will drive the industry’s growth.
Energy Transition Trend, Construction Spending to Aid the Industry: The intensifying global focus on shifting from fossil fuels to zero emissions will require a large number of commodities, which, in turn, will support mining equipment demand in the years to come. The U.S. government's plans to increase investment in infrastructure construction, particularly in critical subsectors, such as transportation, water and sewerage, and telecommunications, should support demand in the coming years.
Higher Pricing, Cost Cuts to Boost Margins: The industry is facing input cost inflation, and transport and logistic costs. Industry players are focusing on pricing actions and efforts to improve productivity and efficiency. They are constantly implementing cost-reduction actions, which are likely to help sustain margins in this scenario. The companies are focused on streamlining their operations and realigning around high-growth key markets or customer segments to enhance their performances.
Investments in Digital Initiatives Act as a Key Catalyst: Industry participants are investing in digital initiatives like AI, cloud computing, advanced analytics and robotics. Digital transformation aids organizations in boosting productivity and increasing efficiency, reliability and safety, thereby enriching customer satisfaction. With the pressing need to cut carbon emissions, companies worldwide are relying more on autonomous machinery. Thus, players in the industry are stepping up their research and technological capabilities to bring products equipped with the latest technology into the market.
Zacks Industry Rank Indicates Weak Prospects
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dim prospects in the near term. The Zacks Manufacturing - Construction and Mining industry, which is part of the broader Zacks Industrial Products Sector currently, carries a Zacks Industry Rank #234, which places it at the bottom 7% of 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.
Before we present a few stocks that you may want to consider for your portfolio, let us take a look at the industry’s recent stock-market performance and valuation picture.
Industry Versus Broader Market
The Manufacturing - Construction and Mining industry has underperformed the Zacks S&P 500 composite and its sector over the past year.
Over this period, the industry has risen 23.3% compared with the sector’s growth of 16.6%. The Zacks S&P 500 composite has moved up 27.5%.
Industry's Current Valuation
The forward 12-month EV/EBITDA ratio, a commonly used multiple for valuing Manufacturing, Construction and Mining companies, shows that the industry is currently trading at 10.10 compared with the S&P 500’s 14.53 and the Industrial Products sector’s forward 12-month EV/EBITDA of 19.18.
Over the last five years, the industry traded as high as 14.37 and as low as 7.04, with a median of 10.20.
4 Manufacturing - Construction & Mining Stocks to Watch
Caterpillar: The company has delivered 14 consecutive quarters of earnings growth, fueled by cost-saving actions, strong end-market demand and pricing actions. CAT ended the second quarter of 2024 with an impressive backlog of $28.6 billion, which will support the company’s top line in the upcoming quarters.
Also, solid long-term demand prospects, backed by infrastructure spending and energy-transition trends, as well as CAT’s focus on growing service revenues, should help it maintain an upbeat performance. The company’s investment in areas of expanding offerings and services, and digital initiatives like e-commerce, sustainability and electrification will drive long-term growth. The stock has gained 26.4% in the past year.
Caterpillar is the largest global construction and mining equipment manufacturer. The Zacks Consensus Estimate for CAT’s 2024 earnings indicates year-over-year growth of 2.9%. Earnings estimates have moved up 1% over the past 30 days. Caterpillar has a trailing four-quarter earnings surprise of around 11%, on average. CAT has an estimated long-term earnings growth rate of 9.8%. The company currently carries a Zacks Rank #3 (Hold).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Hitachi Construction Machinery: HTCMY aims to achieve revenues of more than 300 billion JPY in fiscal 2025 from independent business expansion in the Americas alone. Other core strategies of the plan include delivering innovative solutions for customer needs and enhancing value chain business.
The company is, thus, strengthening its focus on value-chain businesses other than new machinery sales, such as parts and services, rentals, used equipment, and parts recycling. Plus, it is utilizing digital technologies to provide solutions at all points of contact with customers. The company plans to begin full-scale production of dump trucks in fiscal 2026, aiming to capitalize on strong demand in the market.
Notably, the Americas (North, Central and South America) account for approximately 40% of the global markets for dump trucks of more than 150 tons. This aligns with one of HTCMY’s core strategies of “expanding business in the Americas” under its medium-term management plan “BUILDING THE FUTURE 2025.”
Headquartered in Tokyo, Japan, Hitachi Construction Machinery and its subsidiaries engage in the development, manufacturing, sales and service operations of hydraulic excavators, wheel loaders, road construction machines and mining machinery worldwide. The Zacks Consensus Estimate for HTCMY’s current-year earnings has been unchanged over the past 30 days and indicates year-over-year growth of 5.3%. Hitachi currently carries a Zacks Rank #3.
Terex: The company is progressing well on its “Execute, Innovate, Grow" strategy, which should drive growth. Per the “Execute” theme, the company has been working on improving margins through cost-reduction initiatives. It is also ramping up its production plant in Monterrey, Mexico to improve cost competitiveness.
The “Innovate” theme seeks to continuously develop its product offerings, applying technology to improve operational efficiency, and investing in robotics and electrification. The “Grow” aspect focuses on increasing the company’s footprint in new geographies and segments, and adding scope through acquisitions.
In line with this, Terex recently announced an agreement to purchase Environmental Solutions Group. It will be accretive to TEX’s earnings and increase its presence in the fast-growing waste and recycling end market.
Norwalk, CT-based Terex manufactures and sells aerial work platforms and material processing machinery worldwide. The Zacks Consensus Estimate for 2024 earnings indicates year-over-year growth of 2%. Earnings estimates have moved north by 2% over the past 30 days. TEX has a trailing four-quarter earnings surprise of 7%, on average, and an estimated long-term earnings growth rate of 2%. The company currently carries a Zacks Rank #3.
Hyster-Yale: The combination of rising market share, new bookings and a backlog of $2.6 billion (equivalent to six to seven months of revenues at the current quarterly run rate) is expected to support the company’s Lift truck business in the forthcoming quarters. The company expects continued year-over-year revenue growth and strong product margins in the second half of 2024 as higher-priced, higher-margin backlog units are shipped.
Meanwhile, Bolzoni’s shift toward the production of higher-margin attachments and phasing out lower-margin legacy component sales to the Lift Truck business should boost HY’s product margins. Nuvera remains focused on increasing customer product demonstrations and customer orders.
Shipments are expected to increase in the second half of the year, reflecting the current trend in customer orders and anticipated orders for Nuvera's portable generator, which was introduced in May 2024. HY continues to focus on reducing financial leverage and making substantial investments while improving its cash flow.
Cleveland, OH-based Hyster-Yale designs, engineers, manufactures, sells and services a line of lift trucks, attachments and aftermarket parts worldwide. The Zacks Consensus Estimate for the company’s 2024 earnings indicates year-over-year growth of 2%. Earnings estimates have been unchanged over the past 30 days. HY currently has a trailing four-quarter earnings surprise of 30.6% and a Zacks Rank #3.
Why Haven't You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +7.0 average gain per year. Amazingly, they soared with average gains of +44.9%, +48.4% and +55.2% per year.
Today you can access their live picks without cost or obligation.
See Stocks Free >>
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.