The industrial sector's prospects appear promising because of the growing adoption of new technologies and sustainable practices, the government’s focus on boosting domestic manufacturing, the growth in consumer demand as witnessed by the upswing in online shopping, and the diversification of supply chains.
Amid this backdrop, it could be wise to invest in fundamentally strong industrial stocks Siemens Aktiengesellschaft (SIEGY), IES Holdings, Inc. (IESC), and Karat Packaging Inc. (KRT).
Before diving deeper into the fundamentals of these stocks, let’s discuss what’s shaping the industrial sector’s prospects.
The industrial sector is poised for significant expansion, driven by the surge in international economic activities, rapid industrialization, increased digitalization, easing of supply chains, and the rise in demand for manufactured goods and services. Advancements in the industrial sector, such as Industry 4.0, involve providing manufacturers with a smart and connected facility.
Manufacturers are able to leverage the power of Industry 4.0 through increased automation, improvements in robotics, analysis of data to make data-driven decisions, remote monitoring, and real-time communications, helping manufacturers with more effective and predictive maintenance, higher productivity, optimized operations, improved quality, etc.
The heightened demand for manufacturing will drive the demand for industrial services. The global industrial services market is expected to reach $40.75 billion by 2027, expanding at a CAGR of 5.2%.
A variety of businesses rely heavily on industrial machinery for the processing, manufacturing, and production of commodities. Industrial machinery includes industrial robots, machine tools, packing gear, and material handling equipment.
The growth of manufacturing across different industries and the use of advanced technologies in manufacturing will boost the demand for industrial machinery. The global industrial machinery industry is expected to grow at a CAGR of 5.3% to reach $1.04 trillion by 2032.
Furthermore, the rising demand for packaged goods, the growth of online shopping, and the increasing popularity and adoption of sustainable packaging are driving the industrial packaging industry’s growth. The industrial packaging market is projected to grow at a CAGR of 4.7% to reach $83.45 billion by 2029.
Given this backdrop, let’s assess the fundamentals of the featured industrial stocks.
Siemens Aktiengesellschaft (SIEGY)
Headquartered in Munich, Germany, SIEGY is a technology company that focuses on the areas of automation and digitalization. It operates through Digital Industries, Smart Infrastructure, Mobility, Siemens Healthineers, and Siemens Financial Services (SFS) segments.
On November 3, 2023, SIEGY announced a $150 million investment in a cutting-edge manufacturing plant in Dallas-Fort Worth, focusing on producing advanced electrical equipment for American data centers and critical infrastructure. The investment is part of the company’s $290 million investment in the U.S. across three locations as part of a $2 billion investment package.
"The new Fort Worth facility and the Grand Prairie and Pomona extensions will meet booming demand for the electrification of critical infrastructure – in other words, data centres, battery plants, semiconductor facilities, and EV charging," SIEGY said in a press release.
In terms of the trailing-12-month EBITDA margin, SIEGY’s 15.31% is 11.5% higher than the 13.73% industry average. Likewise, its 7.48% trailing-12-month levered FCF margin is 24.4% higher than the industry average of 6.01%. Furthermore, the stock’s 16.41% trailing-12-month Return on Common Equity is 33.5% higher than the industry average of 12.30%.
SIEGY’s revenue for the fiscal fourth quarter that ended September 30, 2023, increased 4% year-over-year to €21.39 billion ($23.43 billion). Its gross profit increased 7.3% year-over-year to €8.24 billion ($9.02 billion). The company’s net income attributable to shareholders of SIEGY amounted to €1.72 billion ($1.88 billion). Also, its net EPS came in at €2.14.
Analysts expect SIEGY’s revenue for the quarter ended December 31, 2023, to increase 6% year-over-year to $20.56 billion. Its EPS for the quarter ending June 30, 2024, is expected to increase 43.3% year-over-year to $1.30. It has topped the consensus EPS estimates in three of the trailing four quarters. Over the past three months, the stock has gained 24.7% to close the last trading session at $89.32.
SIEGY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
SIEGY has a B grade for Value, Stability, and Quality. It is ranked first out of 35 stocks in the B-rated Industrial – Manufacturing industry. In addition to the POWR Ratings highlighted above, one can see SIEGY’s ratings for Growth, Momentum, and Sentiment here.
IES Holdings, Inc. (IESC)
IESC engages in the design and installation of integrated electrical and technology systems and provides infrastructure products and services. The company operates through four business segments: Commercial & Industrial; Communications; Infrastructure Solutions; and Residential.
In terms of the trailing-12-month Return on Common Equity, IESC’s 22.82% is 85.6% higher than the 12.30% industry average. Likewise, its 16.92% trailing-12-month Return on Total Capital is 138.6% higher than the industry average of 7.09%. Furthermore, the stock’s 11.03% trailing-12-month Return on Total Assets is 118.2% higher than the industry average of 5.06%.
IESC’s revenues for the fiscal fourth quarter that ended September 30, 2023, increased 5.1% year-over-year to $649 million. The company’s gross profit increased 43.5% year-over-year to $140.50 million. Its adjusted EBITDA increased 95.5% over the prior year quarter to $60.40 million.
In addition, its adjusted net income attributable to common stockholders increased 80.2% year-over-year to $35.50 million. Also, its adjusted EPS came in at $1.74, registering an increase of 83.2% year-over-year.
Over the past year, the stock has gained 103.2% to close the last trading session at $79.35.
It’s no surprise that IESC has an overall rating of A, which translates to a Strong Buy in our POWR Ratings system.
IESC has a B grade for Growth, Value, Momentum, Stability, and Quality. It is ranked first out of 79 stocks in the B-rated Industrial – Services industry. In addition to the POWR Ratings highlighted above, one can see IESC’s rating for Sentiment here.
Karat Packaging Inc. (KRT)
KRT manufactures and distributes single-use disposable products in plastic, paper, biopolymer-based products, and other compostable forms used in several restaurant and food service settings. It provides food and take-out containers, bags, tableware, cups, lids, cutlery, straws, specialty beverage ingredients, equipment, gloves, and other products under the Karat Earth brand.
On September 19, 2023, KRT announced the successful completion of a strategic initiative of adding five skilled sales representatives focusing on the East coast and Mid-west regions.
With a growing salesforce, new warehouses in Chicago and Houston, and its plans for additional distribution centers, KRT aims to strengthen market share and better serve regional and national chain accounts, reflecting a commitment to long-term growth and financial stability.
In terms of the trailing-12-month gross profit margin, KRT’s 36.90% is 21.9% higher than the 30.28% industry average. Likewise, its 11.06% trailing-12-month EBIT margin is 12.3% higher than the industry average of 9.84%. Furthermore, the stock’s 8.22% trailing-12-month net income margin is 34.4% higher than the industry average of 6.12%.
For the fiscal third quarter, which ended September 30, 2023, KRT’s net sales amounted to $105.53 million. Its gross profit increased 14% year-over-year to $38.94 million. The company’s adjusted EBITDA increased 29.6% over the prior year quarter to $15.23 million.
In addition, its net income attributable to KRT rose 48.7% year-over-year to $9.07 million. Also, its adjusted EPS came in at $0.47, representing an increase of 42.4% year-over-year.
Street expects KRT’s revenue and EPS for the quarter ended December 31, 2023, to increase 3.1% and 60.7% year-over-year to $95.49 million and $0.45, respectively. The company surpassed the Street EPS estimates in three of the trailing four quarters. Over the past nine months, the stock has gained 78.3% to close the last trading session at $23.60.
KRT’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has an A grade for Momentum and Quality and a B for Growth, Value, and Sentiment. Within the B-rated Industrial – Packaging industry, KRT is ranked first out of 20 stocks. Click here to access KRT’s rating for Stability.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
SIEGY shares were trading at $87.38 per share on Tuesday afternoon, down $1.94 (-2.17%). Year-to-date, SIEGY has declined -6.59%, versus a -0.13% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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