The industrial sector’s recovery from the COVID-19 pandemic gained momentum in 2021, driven by the easing of restrictions and growing demand for industrial goods. Industrial production and capacity utilization surpassed pre-pandemic levels last year, and substantial increases in new orders from the major subsectors reflect continued growth this year.
Despite labor shortages, supply chain disruptions, and material price inflation, total industrial production in August grew 3.7% from the year-ago level. Moreover, accelerating digital technology adoption, remaking supply chains, advancing sustainability practices, and rising government and corporate investments should boost the industry’s growth.
The Biden administration has been focusing on ramping up domestic production, with the $1 trillion infrastructure bill being a step in that direction. Furthermore, the Biden-Harris administration last month announced $1.5 billion from the Bipartisan Infrastructure law for Rebuilding America (INFRA) competitive grant program for highway, multimodal freight, and rail projects nationwide.
Given the industry’s tailwinds, we think, investing in high-quality industrial stocks, The Timken Company (TKR) and Hillenbrand Inc. (HI), could be wise.
The Timken Company (TKR)
TKR is involved in the designing and manufacturing of various engineered bearings and power transmission products. The company operates through two segments: mobile industries and process industries.
On September 6, TKR announced that it had agreed to acquire GGB Bearing Technology. Timken President and CEO Richard G. Kyle said, “This acquisition provides strong synergies and meaningfully expands our business by adding complementary products with a solid growth outlook.”
On September 2, TKR paid a quarterly cash dividend of $0.31 per share. The company currently pays a $1.24 per share dividend annually, which translates to a 1.94% yield at the current price. TKR has a 4-year average dividend yield of 2.11%, which compares favorably with the sector median of 1.71%. The company’s dividends have grown at 2.9% CAGR over the past five years.
During the second quarter of the fiscal year 2022 ended June 30, TKR’s net sales increased 8.5% year-over-year to $1.15 billion, while the operating income increased 15.7% year-over-year to $175.9 million. The company’s adjusted EBITDA and net income attributable to TKR increased 15.4% and 16.8% year-over-year to $231.2 million and $123.9 million, respectively.
In addition, the company’s adjusted quarterly earnings per share increased 21.9% year-over-year to $1.67.
Analysts expect TKR’s revenue and EPS for the current fiscal year ending December 2022 to increase 7% and 19.9% year-over-year to $4.42 billion and $5.66, respectively. The company has surpassed the consensus EPS estimates in three of the trailing four quarters.
TKR’s stock has gained 13.1% over the past six months to close the last trading session at $63.33.
TKR’s fundamental strength and consistency have earned it 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.
TKR has a grade of B for Sentiment and Quality. It is ranked #3 out of 36 stocks in the A-rated Industrial - Manufacturing group.
For additional ratings on Growth, Value, Momentum, and Stability for TKR, click here.
Hillenbrand Inc. (HI)
HI operates as a diversified industrial company in the United States and internationally. It operates through three segments: Advanced Process Solutions; Molding Technology Solutions; and Batesville.
This month, HI announced the acquisition of LINXIS Group for total aggregate consideration of €596.2 million ($578.93 million). This would help the company advance its long-term profitable growth strategy by building significant scale with leadership positions in the food processing industry.
On September 30, HI paid its regular quarterly cash dividend of $0.22 per share. The company pays a $0.87 per share dividend annually, which translates to a 2.28% yield at the current price. Its 4-year average dividend yield is 2.35%. The company has increased its dividends for 13 consecutive years.
In August, HI completed the acquisition of Herbold Meckesheim GmbH (Herbold) for €79 million ($76.71 million). With this acquisition, HI should be able to solidify its position as the industry leader and broaden its offers throughout the recycling value chain by utilizing Herbold’s key technologies.
For the third quarter of the fiscal year 2022 ended June 30, HI’s revenue increased 3.7% year-over-year to $720.6 million, while its gross profit increased 2.4% year-over-year to $231.3 million. During the same period, the company’s adjusted net income rose 2.8% from the prior-year quarter to $66.4 million, while its adjusted EPS grew 8.2% year-over-year to $0.92.
Analysts expect HI’s revenue and EPS for the current fiscal year (ending September 2023) to increase by 4.1% and 7.3% to $3.04 billion and $4.18, respectively. In addition, the company has topped the consensus EPS estimates in each of the trailing four quarters.
The stock has dipped 7.7% over the past six months to close the last trading session at $38.14.
HI’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
HI has a grade B for Growth, Sentiment, Value, and Quality. The stock is ranked #2 among 36 stocks in the same industry.
Click here for additional ratings for Momentum and Stability for HI.
TKR shares were unchanged in after-hours trading Wednesday. Year-to-date, TKR has declined -8.91%, versus a -24.06% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.
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