The industrial and machinery sector plays a vital role in the economy, supplying crucial equipment, machinery, and services to diverse industries. As economies grow, there is a tendency for an upsurge in demand for industrial equipment and machinery, creating opportunities for sustained growth.
Given the backdrop, it could be wise to consider investing in three fundamentally sound industrial companies: Sonoco Products Company (SON), Gibraltar Industries, Inc. (ROCK), and Enerpac Tool Group Corp. (EPAC).
But before we jump into the fundamentals of the highlighted stocks, let us briefly examine the factors shaping the industry’s prospects.
Despite the industrial sector facing tough times in recent years, dealing with the lasting effects of the pandemic, an ongoing shortage of skilled workers, and disruptions in the supply chain, the industry is anticipated to bounce back. This optimism stems from the industry's adoption of cutting-edge technology, showcasing a resilient spirit in navigating challenges and adapting to new solutions.
There is a notable trend among companies adopting a smart factory approach, immersing themselves in the industrial metaverse, and exploring the potentials of generative AI, all aimed at elevating the value of their operations.
According to a study by Deloitte, an impressive 86% of surveyed manufacturing executives express the belief that smart factory solutions will emerge as the leading drivers of competitiveness in the coming five years.
With the expectation of a surge in the adoption of cutting-edge technologies like the Internet of Things (IoT), Artificial Intelligence (AI), and robotics to enhance machinery efficiency and productivity, the global industrial machinery market is forecasted to hit a staggering $1.04 trillion by 2032, growing at a 5.3% CAGR from 2023 to 2032.
Meanwhile, the packaging segment of the industrial sector is growing at a rapid pace, fueled by the evolving needs of global supply chains, the influence of e-commerce, and technological advancements. The global industrial packaging market size is predicted to reach $132.80 billion by 2032, exhibiting a 6.8% CAGR from 2022 to 2032.
In light of such encouraging projections, let’s now dig deeper into the fundamentals of the featured industrial stocks in detail:
Sonoco Products Company (SON)
SON designs, develops, manufactures, and sells various engineered and sustainable packaging products in North and South America, Europe, Australia, and Asia. The company operates through two segments: Consumer Packaging and Industrial Paper Packaging.
On December 8, 2023, SON paid its shareholders a quarterly dividend of $0.51 per share. The company’s annual dividend of $2.04 translates to a 3.64% yield on the prevailing prices, while its four-year average dividend yield is 3.18%.
Its dividend payouts have grown at CAGRs of 5.5% and 4.5% over the past three and five years, respectively. Also, SON has a record of 41 years of consecutive dividend growth.
On September 8, 2023, SON completed its acquisition of RTS Packaging, LLC. Originally announced on November 9, 2022, this acquisition enhances SON’s position as a diversified global packaging leader, particularly in providing 100% recycled fiber-based packaging solutions for consumer markets such as wine, spirits, food, beauty, and healthcare.
Through this acquisition, SON expanded its reach, incorporating a network of 15 operations and adding 1,100 employees across the United States, Mexico, and South America.
SON’s trailing-12-month levered FCF margin of 6% is 44.2% higher than the 4.16% industry average. Likewise, its trailing-12-month Return On Common Equity (ROCE) of 23.04% is 209.2% higher than the industry average of 7.45%. Furthermore, the stock’s trailing-12-month cash per share of $2.63 is 71.7% higher than the industry average of $1.53.
For the fiscal third quarter, which ended on October 1, 2023, SON’s net sales amounted to $1.71 billion, while its gross profit stood at $364.26 million. The company’s attributable net income rose 6.9% from the year-ago value to $130.75 million. Moreover, its EPS came in at $1.32, up 6.5% from the prior-year quarter.
Analysts predict SON’s revenue and EPS for the fiscal fourth quarter (ended December 2023) to come in at $1.62 billion and $1.10, respectively. Moreover, the company surpassed its EPS estimates in three of the trailing four quarters, which is impressive.
Over the past three months, the stock has surged 3.7% to close the last trading session at $55.98.
SON’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, translating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Stability and Sentiment. In the B-rated 20-stock Industrial - Packaging industry, it is ranked #7. Click here to see SON’s ratings for Growth, Value, Momentum, and Quality.
Gibraltar Industries, Inc. (ROCK)
ROCK manufactures and distributes building products for the renewable energy, residential, agtech, and infrastructure markets. It operates through four segments: Renewables; Residential; Agtech; and Infrastructure.
ROCK’s trailing-12-month levered FCF margin of 17.87% is 199.9% higher than the 5.96% industry average. Likewise, its trailing-12-month asset turnover ratio of 1.04x is 28.5% higher than the industry average of 0.81x. Furthermore, the stock’s trailing-12-month cash per share of $2.81 is 32.6% higher than the industry average of $2.12.
In the fiscal third quarter, which ended on September 30, 2023, ROCK’s net sales amounted to $390.74 million, while its gross profit rose 11.5% from the year-ago value to $105.38 million.
Moreover, the company’s net income and net income per share came in at $39.28 million and $1.28, up 14.5% and 18.5% from the prior-year quarter, respectively. In addition, its income from operations improved 12.2% year-over-year to $53.19 million.
The consensus revenue estimate of $331.33 million for the fiscal fourth quarter (ended December 2023) represents a 5.6% year-over-year improvement. Meanwhile, the consensus EPS estimate of $0.85 for the same period reflects an 18.1% year-over-year rise.
Moreover, the company has an excellent earnings surprise history, surpassing the EPS estimates in three of the trailing four quarters.
ROCK’s shares have surged 26.8% over the past six months and 24.9% over the past three months to close the last trading session at $79.75.
ROCK’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It has an A grade for Growth, Momentum, and Sentiment and a B for Quality. Within the 34-stock Industrial - Metals industry, it is ranked first. Click here to see the other ratings of ROCK for Value and Stability.
Enerpac Tool Group Corp. (EPAC)
EPAC manufactures and sells a range of industrial products and solutions internationally. The company operates through two segments: Industrial Tools & Services; and other segments.
On October 16, 2023, EPAC paid its shareholders an annual dividend of $0.04 per common share. Its annual dividend translates to a 0.14% yield on the prevailing prices, while its four-year average dividend yield is 0.18%.
EPAC’s trailing-12-month levered FCF margin of 11.46% is 92.3% higher than the 5.96% industry average. Likewise, its trailing-12-month gross profit margin of 50.31% is 65.2% higher than the industry average of 30.46%. Furthermore, the stock’s trailing-12-month EBITDA margin of 24.06% is 73.9% higher than the industry average of 13.83%.
For the fiscal 2024 first quarter, which ended on November 30, 2023, EPAC’s net sales increased 1.9% year-over-year to $141.97 million, while its operating profit improved 132.9% from the year-ago value to $28.66 million.
The company’s net income grew 185.9% from the prior-year quarter to $18.30 million. Its adjusted EPS and adjusted EBITDA came in at $0.39 and $34.90 million, up 34.5% and 31.2% year-over-year, respectively.
Street expects EPAC’s revenue and EPS for the fiscal second quarter (ending February 2024) to come in at $141.10 million and $0.36, respectively. Additionally, its EPS is projected to improve by 12.2% per annum over the next five years.
EPAC’s shares have soared 7.1% over the past six months to close the last trading session at $29.37.
It’s no surprise that EPAC has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. It has a B grade for Growth, Sentiment, and Quality. Out of 79 stocks in the A-rated Industrial - Machinery industry, it is ranked #7.
In addition to the POWR Ratings we’ve stated above, we also have EPAC’s ratings for Value, Momentum, and Stability. Get all EPAC ratings here.
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SON shares were trading at $55.83 per share on Thursday morning, down $0.15 (-0.27%). Year-to-date, SON has declined -0.07%, versus a -0.33% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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