The industrial sector's future appears bright due to the growing demand for manufactured goods and services and the rise of automation and smart manufacturing. Government initiatives to boost domestic manufacturing and rising investments in developing domestic infrastructure further bolster its promising outlook.
Amid this favorable backdrop, investors could consider buying fundamentally strong industrial stocks: James Hardie Industries plc (JHX), EMCOR Group, Inc. (EME), and Clearwater Paper Corporation (CLW).
Before diving deeper into the fundamentals of these stocks, let’s discuss what’s shaping the industrial sector’s prospects.
The industrial sector's bright future is shaped by its transition to smart factories and the adoption of advanced technologies like robotics, IoT, and AR. Despite challenges like labor shortages and supply chain disruptions, manufacturing is rebounding, with production of various goods exceeding pre-pandemic levels.
In the era of Industry 4.0, the industrial sector is undergoing a digital transformation, boosting productivity and efficiency, driving economic expansion, and reshaping diverse industries. The global Industry 4.0 market is projected to reach $482 billion by 2032, growing at a CAGR of 20.7%.
Increased government investments in improving infrastructure, growing demand for commercial and residential spaces, and the adoption of sustainable building practices are driving the demand for building materials. The global building materials market is forecasted to grow at a 3.9% CAGR, reaching $1.70 trillion by 2031.
Meanwhile, the paper and packaging industry is booming due to rising e-commerce, healthcare, and textile demands, with trends leaning toward sustainable packaging and digital printing. The synthetic paper market is projected to grow at a 6.9% CAGR, reaching $1.17 billion in 2024.
Furthermore, the industrial services sector boosts overall industrial growth by offering various applications and support services, improving manufacturing efficiency, resource management, and project focus. The global industrial services market is expected to grow at a CAGR of 5.7%, reaching $44.05 billion in 2028.
Let’s analyze the fundamental aspects of the three industrial stocks mentioned above.
James Hardie Industries plc (JHX)
Based in Dublin, Ireland, JHX manufactures and sells fiber cement, fiber gypsum, and cement-bonded building products for interior and exterior building construction applications, primarily in the United States, Australia, Europe, New Zealand, and the Philippines. The company operates through North America Fiber Cement, Asia Pacific Fiber Cement, and Europe Building Products segments.
In terms of the trailing-12-month gross profit margin, JHX’s 39.17% is 38.2% higher than the 28.34% industry average. Likewise, its 12.63% trailing-12-month Capex/Sales is 65.7% higher than the 7.62% industry average. Additionally, its 0.84x trailing-12-month asset turnover ratio is 20.7% higher than the 0.70x industry average.
For the third quarter, which ended December 31, 2023, JHX’s net sales increased 13.7% year-over-year to $978.30 million. The company’s adjusted net income and adjusted EPS amounted to $179.90 million and $0.41, up 39.2% and 41.4% year-over-year, respectively. Also, its adjusted EBITDA rose 34.2% over the prior-year quarter to $280.40 million.
Street expects JHX’s revenue for the quarter ending March 31, 2024, to increase 10.3% year-over-year to $1.01 billion. Its EPS for the fiscal year ending March 31, 2024, is expected to increase 18% year-over-year to $1.60. Over the past year, the stock has gained 65.8% to close the last trading session at $37.20.
JHX’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. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Growth, Momentum, and Stability and a B for Sentiment and Quality. Within the A-rated Industrial - Building Materials industry, it is ranked #4 out of 45 stocks. To see JHX’s rating for Value, click here.
EMCOR Group, Inc. (EME)
EME provides electrical and mechanical construction and facilities services primarily in the United States and the United Kingdom. The company offers comprehensive services spanning electrical systems, energy solutions, HVAC, plumbing, fire protection, water treatment, steel fabrication, and more.
In terms of the trailing-12-month Return on Common Equity, EME’s 26.59% is 115.9% higher than the 12.32% industry average. Likewise, its 18.17% trailing-12-month Return on Total Capital is 165.1% higher than the 6.85% industry average. Additionally, its 2.07x trailing-12-month asset turnover ratio is 157.4% higher than the 0.81x industry average.
EME’s revenues for the third quarter, which ended September 30, 2023, increased by 13.5% year-over-year to $3.21 billion. Its non-GAAP operating income rose 58.1% over the prior-year quarter to $237.33 million.
Additionally, for the same quarter, the company’s non-GAAP net income and non-GAAP earnings per share grew 61.8% and 67.1% from the year-ago values to $171.11 million and $3.61, respectively.
Analysts expect EME’s EPS and revenue for the quarter that ended December 31, 2023, to increase 36.4% and 14% year-over-year to $3.59 and $3.36 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 66.1% to close the last trading session at $251.16.
It’s no surprise that EME has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has a B grade for Growth, Momentum, and Quality. Within the A-rated Industrial - Services industry, it is ranked #3 out of 77 stocks. Beyond what we stated above, we also have given EME grades for Value, Stability, and Sentiment. Get all EME ratings here.
Clearwater Paper Corporation (CLW)
CLW manufactures and supplies bleached paperboards and consumer and parent roll tissues internationally. It operates through two segments: Pulp and Paperboard and Consumer Products.
On November 16, 2023, CLW announced a partnership with Charter Next Generation (CNG) to launch circular polyethylene in consumer tissue packaging. Using advanced recycling, they transform hard-to-recycle plastics into new materials, fostering environmental awareness and earning ISCC Plus certifications for both firms.
In terms of the trailing-12-month Return on Total Assets, CLW’s 4.85% is 52% higher than the 3.19% industry average. Likewise, its 13.83% trailing-12-month Return on Common Equity is 94.1% higher than the 7.12% industry average. Additionally, its 7.51% trailing-12-month Return on Total Capital is 39.5% higher than the 5.38% industry average.
For the third quarter, which ended September 30, 2023, CLW’s net sales amounted to $519.90 million. Its adjusted EBITDA rose 4.3% over the prior-year quarter to $80.60 million. Moreover, the company’s adjusted income increased by 18.6% year-over-year to $37 million, and its adjusted income per share came in at $2.19, up 19.7% year-over-year.
For the fiscal year ended December 31, 2023, CLW’s EPS is expected to increase 88.2% year-over-year to $6.83. Over the past nine months, the stock has gained 6.6% to close the last trading session at $34.77.
CLW’s positive outlook is reflected in its POWR Ratings. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It has a B grade for Growth, Value, Stability, Sentiment, and Quality. It is ranked first out of 10 stocks in the B-rated Industrial - Paper industry. To access CLW’s rating for Momentum, click here.
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JHX shares were trading at $36.96 per share on Wednesday afternoon, down $0.24 (-0.65%). Year-to-date, JHX has declined -4.42%, versus a 4.12% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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