Chicago, IL – June 21, 2023 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Graco Inc. GGG, Ingersoll Rand Inc. IR, Crane Company CR and Flowserve Corporation FLS.
General Industrial Manufacturing is a pretty broad umbrella and it would be incorrect to say that the current environment is supportive of all the players.
After all, despite the pause in rate hikes, we do have hawkish comments from the Fed that there may be another 50 bps of increase to digest. The Fed doesn’t want to stop until it has achieved the targeted 2% inflation rate, but its wait-and-see approach is positive for the economy because if all goes well, the pause may come to a halt. At least that’s the hope.
From the data currently available, we know that manufacturing PMI in May remains below 50%, an indication of contraction in the manufacturing sector.
However, new orders data from the Census Bureau shows an increase for manufactured goods, driven by orders for military aircraft.
Orders for non-defense capital goods excluding aircraft, considered a proxy for business spending plans, rose 1.4% in April (latest available data), up from a 0.6% decline in March. This number has fluctuated in a close range since August of 2022, reflecting the prevailing economic uncertainty.
Capacity utilization was 0.1% below estimates (and the long-term average) in May, but still quite strong at 79.6%. Manufacturing capacity utilization was slightly lower at 78.4%. Production increased 0.2%. Inventories increased at manufacturers by 0.5%, wholesalers -0.1% and retailers 0.1%. The numbers indicate an element of caution at manufacturers and distributors.
US GDP growth of 1.6% in the first quarter was also an improvement over the 0.9% managed in the December quarter, according to the BEA.
Therefore, overall economic conditions, a big driver of industrial manufacturing appears neutral with significant uncertainty persisting.
The National Association of Manufacturers (NAM) see a challenge with respect to the workforce. Given the rapid adoption of technology in manufacturing, there is the need to recruit more skilled workers and reskill the existing workforce. The skills gap can affect production efficiency despite available technology. However, adopting the latest technology holds the promise of improved productivity, efficiency, and quality, thereby leading to cost savings. Therefore, technology adoption should be considered a positive and will be an important factor deciding competitiveness going forward.
Infrastructure development, whether public or private, increases demand for industrial goods. Therefore, the government’s initiatives to boost road and rail, energy systems, telecom infrastructure are positive for the industry. As regards private/commercial construction activity, there is an ongoing drive to complete projects, as unfinished inventory is still considerable. New starts are going slow in residential (for a number of reasons) and at a virtual halt in commercial because of plummeting demand.
Overall, the manufacturing sector is undergoing many changes because of the renewed focus on reshoring, environmental factors, consumer preferences and government policy changes.
Also, the supply chain issues that companies struggled with in the past year are moderating, with production becoming easier to that extent. Companies are also reconsidering the efficacy of a just-in-time model given these concerns.
Here are four stocks from the industry that caught my attention:
Graco Inc.
Graco designs, manufactures and markets equipment and systems used to measure, move, control, spray and dispense fluid and powder materials. This Minneapolis, MN-based company with manufacturing operations across the U.S, Europe and China caters to end customers in the Asia Pacific, the Americas, and Europe, Middle East and Africa (EMEA).
Graco has three operating segments. Industrial provides pre-engineered and equipment packages for paints, sealants, adhesives and other fluids to wood and metal products, automotive and vehicle assembly, components production, aerospace, construction, farm, rail, marine, recreational vehicles and other customers. Process provides valves, pumps, accessories, and meters to dispense and move chemicals, wastewater, oil and natural gas, petroleum, lubricants, food and other fluids to service garages, food and beverage, fleet service centers, dairy, pharmaceutical, oil and natural gas, semiconductor, cosmetics, industrial lubrication, electronics, fast oil change facilities, mining, wastewater, automobile dealerships and others. Contractor provides sprayers used to paint structures like walls and product models.
In the last quarter, the Zacks Rank #1 (Strong Buy) company beat the Zacks Consensus Estimate by 21.3%. The estimate for 2023 has increased 10.9% while that for 2024 increased 8.1% in the last 60 days. At these levels, the estimates represent growth of 16.4% in 2023 followed by 4.5% in 2024.
Ingersoll Rand Inc.
Davidson, NC-based Ingersoll Rand provides mission-critical technologies in air, fluid, energy, specialty vehicle, and medical fields. It operates through two segments. The Industrial Technologies and Services segment offers air and gas compression, fluid transfer equipment and power tools. The Precision and Science Technologies segment specializes in pumps, gas boosters, automated liquid handling systems and other components. Some of the most important markets it serves include medical, life sciences, industrial manufacturing, water and waste water, chemical processing, energy, food and beverage and agriculture.
Ingersoll posted a 25.0% surprise at the last earnings announcement. In the last 60 days, its 2023 and 2024 earnings estimates have increased 7.1% and 7.0%, respectively. Going by these estimates, analysts are looking for 14.8% earnings growth this year and 3.4% in the next.
The shares carry a Zacks Rank #1.
Crane Company
Crane is a global manufacturing company based in Stamford, CT. It manufactures and sells engineered industrial products across various segments. The Aerospace & Electronics segment provides critical components and systems for the aerospace and defense markets. The Process Flow Technologies segment offers fluid handling equipment, including valves and pumps. The Payment & Merchandising Technologies segment specializes in electronic equipment and software solutions. The Engineered Materials segment produces fiberglass-reinforced plastic panels for various applications.
In the last quarter, this Zacks Rank #2 (Buy) company beat analyst estimates by 48.8%. Its 2023 estimate increased 7.9% in the last 60 days while the 2024 estimate increased 3.8%. Earnings are expected to grow 8.0% in 2024.
Flowserve Corporation
Headquartered at Irving, TX, Flowserve is a leading manufacturer and aftermarket service provider of comprehensive flow control systems, globally. Flowserve currently has two reportable segments. The Flowserve Pump Division produces, sells, and replaces and services highly engineered pumps, pump systems, industrial pumps, mechanical seals and auxiliary systems. It serves power generation, chemical, general industrial and oil & gas markets. The Flow Control Division manufactures valves, valve automation products, boiler controls and solutions for power generation, water management, chemical, and oil and gas markets.
Flowserve beat estimates by 53.9% in the last quarter. Analysts raised their 2023 estimates for this Zacks Rank #2 stock by 7.7% and 2024 estimates by 3.7%. They are forecasting earnings growth of 64.6% in 2023 and 23.1% in 2024.
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