LXFR - 3 Machinery Stocks Set to Soar with an Improving Economy

The U.S. is gradually improving from the crippling effects of the COVID-19 pandemic. The industrial machinery sector, which had been severely impacted by global lockdown measures and supply chain constraints, has been making a strong comeback since the third quarter of 2020.

The US Industrial Production Index stood at 107.2 in January, while industrial capacity utilization improved to 75.6% in January, up from 64.1% in April 2020. The U.S. Congressional Budget Office  expects the economic expansion, which began in mid-2020, to continue.

Manufacturers have prioritized building a resilient supply chain to limit the chance of disruption by future widespread catastrophes of public health crises. They have also increased their spending on IT infrastructure and automation technologies to maintain their production levels and at the same time minimize risk to their employees. With the current nationwide vaccination drive in full swing, which is expected to greatly reduce new cases of the virus, the production capacity of the manufacturing industry looks set to rise.

Against this backdrop, we think machinery stocks  ABB Ltd (ABB), Lincoln Electric Holdings, Inc. (LECO), and Luxfer Holdings PLC (LXFR) could witness strong momentum.

ABB Ltd (ABB)

ABB is a leading global technology company that manufactures and sells electrification, industrial automation, and robotics and motion products. It primarily serves customers in utilities, industry and transport, and the infrastructure sector worldwide.

Last month,   ABB launched its  new GoFa and SWIFTI cobot families to complement YuMi and Single Arm YuMi in its collaborative robot (cobot) portfolio. These robots are stronger, faster and more capable and are expected to accelerate the company's expansion in high-growth segments, including electronics, healthcare, consumer goods, and logistics, amongst others, thereby, meeting a growing demand for automation across multiple industries.

In January, ABB deployed an optical sensor on the SpaceX rocket that will launch satellite Hugo from GHGSat to map methane emissions from space at  100 times greater resolution than any other sensor. This should  provide valuable insights that  will enable governments and industries to meet their emission reduction targets in their effort to reduce global warming.

ABB’s revenues have increased 1.6% year-over-year to $7.18 billion in the fourth quarter ended December 31, 2020. Its orders have risen 1.7% from the year-ago value to $7.00 billion, while its  operational EBITA has improved 16.2% to $825 million over the same period.

Analysts expect ABB’s revenues to rise 7.1% year-to-year to $27.93 billion in its  fiscal 2021 ending December 31. A  consensus EPS estimate of $1.21 for the current year represents a 23.5% improvement from the previous year. The company has an impressive earnings surprise history; it surpassed the Street’s EPS estimates in each of the trailing four quarters. The stock has gained 16.4% over the past six months.

ABB’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

ABB has a grade of A for Momentum, and B for Growth, Sentiment and Quality. Of the 87 stocks in the A-rated Industrial - Machinery Industry, the stock is ranked #3.

In total, we rate ABB on eight different levels. Beyond what we’ve  stated above, we have also  given ABB grades for Stability, and Value. Get all of ABB’s ratings here.

Lincoln Electric Holdings, Inc. (LECO)

LECO is a manufacturer and marketer of arc welding products, automated joining, assembly and cutting systems, plasma and oxy-fuel cutting equipment. It also has a leading global position in brazing and soldering alloys. The company operates through three segments: Americas Welding, International Welding, and The Harris Products Group.

Last month, LECO was  recognized by Ethisphere, a global leader in defining and advancing the standards of ethical business practices, as one of 2021 World's Most Ethical Companies (in 2021) for the fourth consecutive year. This recognition demonstrates LECO’s longstanding commitment to integrity and ethics in making hard but values-based decisions.

LECO’s operating income has increased slightly year-over-year to $83.44 million in the fourth quarter ended December 31, 2020, yielding an operating margin of 12%, up 80 basis points over the same period. Its adjusted EBIT has risen 2.4% from the year-ago value to $97.26 million, while its adjusted EPS has improved 7.8% to $1.24 over the same period.

Analysts expect LECO’s revenues to grow 10.5% year-over-year to $2.93 billion in the current quarter (ending March 31, 2021). A  consensus EPS estimate of $5 for the first quarter represents  a 20.5% improvement from its  year-ago value. The company has an impressive earnings surprise history; it beat the Street’s EPS estimates in three of the trailing four quarters. The stock has gained 26.5% over the past six months.

It’s no surprise that LECO has an overall rating of A, which translates to Strong Buy in our POWR Ratings system. LECO has a B grade for Quality, Stability and Sentiment. In the same industry, the stock is ranked #2.

Click here to see the additional POWR Ratings for LECO (Momentum, Value and Growth).

Luxfer Holdings PLC (LXFR)

Based in Manchester, LXFR is a global manufacturer of highly engineered industrial materials. It focuses on value creation by using its broad array of technical know-how and proprietary technologies. The Company operates through two segments: gas cylinders and elektron. It is engaged in manufacturing high-performance materials, components and high-pressure gas containment devices for use in defense and emergency response, healthcare, transportation and general industrial applications.

In February, LXFR announced its intent to divest of non-strategic aluminum product lines, including Superform, which generated $53 million in revenue for the year. This will leave the company with a portfolio of businesses that have stronger margins and growth profiles. This should  LXFR to focus more on strategic moves  and capital deployment.

LXFR’s operating income has increased 35.5% year-over-year to $8.40 million in the fourth quarter, ended December 31, 2020, yielding an operating margin of 10.2%, up 270 basis points over the same period. Its adjusted EBITDA has risen 15.7% from the year-ago value to $14.70 million, while adjusted EPS from continuing operations has improved 35 % to $0.27 over the same period.

Analysts expect LXFR’s revenues to rise 7.4% year-to-year to $348.75 million in its  fiscal 2021, ending December 31. A consensus EPS estimate of $1.17 for the current year represents a 13.6% improvement from the previous year. The company has an impressive earnings surprise history; it surpassed the Street’s EPS estimates in each of the trailing four quarters. The stock has gained 39% over the past six months.

LXFR’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, which equates to Strong Buy in our ratings system. LXFR has a B grade for Value, Quality and Sentiment. The stock is ranked #5 of 87 stocks in the same A-rated industry.

Click here to see the additional POWR Ratings for LXFR (Momentum, Stability, and Growth).

The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

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ABB shares were trading at $29.15 per share on Thursday afternoon, down $0.27 (-0.92%). Year-to-date, ABB has gained 4.26%, versus a 0.87% rise in the benchmark S&P 500 index during the same period.

About the Author: Rishab Dugar

Rishab is a financial journalist and investment analyst. His investment approach is to focus on quality stocks, trading at low prices, with business models that he readily understands.

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