Despite several macroeconomic headwinds, the industrial sector is well-placed for considerable growth and profitability, driven by solid demand for industrial equipment and machinery and several government policies. Furthermore, numerous advanced technologies are increasingly used in manufacturing processes, boosting increased productivity and lower operating costs.
Given the sector’s tailwinds, investors could consider buying fundamentally sound industrial stocks Eaton Corporation plc (ETN), Curtiss-Wright Corporation (CW), and Sumitomo Heavy Industries, Ltd. (SOHVY) for steady returns.
Despite growing concerns about an economic downturn, the industrial sector is well positioned to witness robust growth, thanks to a significant surge in demand for industrial machinery and solutions across various sectors. Based on the data released by the Federal Reserve, industrial production in the U.S. grew 0.2% year-over-year in May.
Furthermore, favorable government initiatives should drive the industrial sector’s growth. On March 28, the Biden-Harris Administration announced new actions to advance a cleaner industrial sector, boosting American manufacturing and reducing greenhouse gas emissions.
The digital transformation toward Industry 4.0 has also become imperative for manufacturers, making them more flexible, agile, and responsive to customers. There is a growing adoption of advanced technologies in manufacturing operations and processes, including adaptive robotics, data analytics, cloud systems, AI, and additive manufacturing.
According to a report by the global industrial machinery market is projected to reach $708.30 billion in 2027, growing at a 6.7% CAGR.
Given the sector’s bright growth prospects, quality industrial stocks ETN, CW, and SOHVY could be solid buys now.
Let’s discuss the fundamentals of these stocks in detail.
Eaton Corporation plc (ETN)
Headquartered in Dublin, Ireland, ETN is a power management company. It operates through segments, including Electrical Americas and Electrical Global; Aerospace; Vehicle, and eMobility. It offers electrical components, industrial components, residential products, wiring devices, utility power distribution products, and power reliability equipment and services.
On July 10, ETN and a Singaporean company SIA Engineering Company Limited, signed an agreement to form a component maintenance, repair, and overhaul (MRO) joint venture (JV). This JV would inspect, test, repair, maintain, and overhaul Eaton-manufactured aircraft components installed on airframe and engine fuel systems and hydraulics systems.
This new JV would combine SIA Engineering Company’s experience and reputed position in the Asia Pacific region with ETN’s global reach and vast customer base.
On June 14, ETN collaborated with FMX, a leading provider of facilities and maintenance management solutions, to help industrial customers implement preventive maintenance programs in their facilities.
Both companies’ smart maintenance solution is expected to reduce industrial maintenance costs by up to 25% through the implementation of digitally enabled predictive maintenance technologies. This should bode well for ETN.
Also, on April 24, the company announced the completion of the acquisition of a 49% stake in Jiangsu Ryan Electrical Co. Ltd., a leading power distribution and sub-transmission transformers manufacturer in China. Ryan generated revenue of approximately $100 million in 2022.
The solid combination of ETN’s global distribution and Ryan’s high-quality products would enable them to serve customers better in Asia Pacific and worldwide. Together, the companies are positioned to offer solutions for the transition to more renewable energy and electrical content in various applications.
ETN’s trailing-12-month gross profit margin of 33.64% is 12.8% higher than the industry average of 29.83%. Also, the stock’s trailing-12-month net income margin of 12% is 89.1% higher than the 6.35% industry average.
ETN’s net sales increased 13.2% year-over-year to $5.48 billion in the first quarter that ended March 31, 2023. Its income before income taxes grew 23.1% from the year-ago value to $762 million. Also, the company’s adjusted earnings rose 16% year-over-year to $753 million and $1.88 per share, respectively.
Analysts expect ETN’s revenue and EPS for the fiscal year (ending December 2023) to increase by 9.7% and 11.7% year-over-year to $22.76 billion and $8.46, respectively. Moreover, the company surpassed its consensus EPS estimates in all four trailing quarters, which is impressive.
Additionally, the consensus revenue EPS estimate of $24.15 billion and $9.36 for the fiscal year 2024 indicates an improvement of 6.1% and 10.6% year-over-year, respectively.
Shares of ETN have gained 26.8% over the past six months and 62.3% over the past year to close the last trading session at $205.96. The stock’s 24-month beta is 0.89.
ETN’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
ETN has a B grade for Growth, Sentiment, Stability, and Quality. In the A-rated Industrial – Machinery industry, it is ranked #12 of 79 stocks. Click here to access additional POWR Ratings of ETN for Value and Momentum.
Curtiss-Wright Corporation (CW)
CW offers engineered products, solutions, and services to the aerospace, defense, general industrial, and power generation markets globally. The company operates through three segments: Aerospace & Industrial; Defense Electronics; and Naval & Power.
On June 12, CW was awarded a $24 million contract from Nellis Air Force Base to provide Flight Test Instrumentation (FTI) equipment in support of the F-35 Technology Refresh 3 (TR-3) program.
Lynn M. Bamford, CW’s Chair and CEO, said, “The receipt of this contract reflects our long-standing relationships and ongoing collaboration with the F-35 Joint Program Office and U.S. Flight Test Range engineers and personnel, and demonstrates the trust and confidence that customers place in Curtiss-Wright’s advanced and reliable integrated high-speed flight test instrumentation systems.”
CW’s trailing-12-month gross profit margin of 37.08% is 24.3% higher than the industry average of 29.83%. Likewise, the stock’s trailing-12-month EBITDA and net income margins of 21.77% and 11.81% compare to the respective industry averages of 13.50% and 6.35%.
For the first quarter that ended March 31, 2023, CW’s net sales grew 12.8% year-over-year to $630.86 million. Its adjusted operating income was $81.29 million, up 14.8% year-over-year, driven by favorable absorption on higher organic revenues and a solid contribution from the arresting systems acquisition.
Furthermore, the company’s adjusted earnings per share increased 16.8% from the prior year’s quarter to $1.53.
Analysts expect revenue and EPS for the fiscal year (ending December 2023) to increase by 5.6% and 8.7% year-over-year to $2.70 billion and $8.84, respectively. Moreover, the company topped its consensus EPS estimates in all four trailing quarters.
CW’s shares have gained 13.8% over the past six months and 46.4% over the past year to close the last trading session at $188.61. Its 24-month beta is 0.71.
CW’s POWR Ratings reflect its solid outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.
The stock has a grade B for Quality, Stability, and Sentiment. In the 79-stock A-rated Industrial - Machinery industry, CW is ranked #14.
Beyond what we stated above, we also have CW’s ratings for Growth, Value, and Momentum. Get all CW ratings here.
Sumitomo Heavy Industries, Ltd. (SOHVY)
SOHVY manufactures and sells general machinery, advanced precision machinery, construction machinery, ships, and environmental plant facilities in Japan and internationally. The company operates in four segments: Mechatronics; Industrial Machinery; Logistics & Construction; and Energy & Lifelines. It is headquartered in Tokyo, Japan.
SOHVY’s trailing-12-month CAPEX/Sales of 4.62% is 61.6% higher than the industry average of 2.86%. Likewise, the stock’s trailing-12-month asset turnover ratio of 0.97x is 20.6% higher than the industry average of 0.80x.
During the first quarter that ended March 31, 2023, SOHVY’s operating profit increased 9.3% year-over-year to ¥16.16 billion ($116.54 million). Profit attributable to owners of parent grew 4.8% from the year-ago value to ¥10.81 billion ($77.96 million). In addition, the profit attributable to owners of parent ratio was ¥88.24, an increase of 4.8% from the prior-year period.
SOHVY’s revenue is expected to increase 13% year-over-year to $7.29 billion for the fiscal year ending December 2023. In addition, the company surpassed the consensus revenue estimates in three of the trailing four quarters.
The stock has gained 17% over the past six months and 4.6% over the past year to close the last trading session at $5.65. SOHVY’s 24-month beta is 0.48.
SOHVY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
SOHVY has a B grade for Growth, Value, Momentum, and Stability. In the same industry, it is ranked #16.
In addition to the POWR Ratings I’ve just highlighted, you can see SOHVY’s ratings for Sentiment and Quality here.
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ETN shares were trading at $206.41 per share on Tuesday morning, up $0.45 (+0.22%). Year-to-date, ETN has gained 32.84%, versus a 18.74% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
3 Steady Industrial Stocks to Consider StockNews.com
