The industrial and machinery sector is a fundamental part of the economy, providing essential equipment, machinery, and services to various industries. As economies expand, the demand for industrial equipment and machinery tends to increase, providing potential for sustained growth.
Given the sector's stability, long-term growth potential, technological advancements, and global reach, it could be wise to take a bullish stance on the fundamentally solid stocks ABB Ltd (ABBNY), Tennant Company (TNC), and Thermon Group Holdings, Inc. (THR), which are well-positioned to thrive and capitalize on the growth of the sector.
Despite the adverse effect of the pandemic and subsequent government restrictions on the movement of goods that caused manufacturers to face production halts due to shortages of raw materials and components, it is anticipated that the industrial machinery manufacturing market will bounce back from this unexpected event over the forecast period.
For instance, the industrial machinery market experienced significant growth, expanding from $506.67 billion in 2022 to $545.67 billion in 2023, reflecting 7.7%. CAGR. Furthermore, it is expected to reach a value of $708.30 billion by 2027, exhibiting a CAGR of 6.7%.
The significant growth mentioned in the above statistics can be attributed to breakthroughs that are expected to fuel innovation within the industry during the forecasted period. Notably, the utilization of technologies like 3D printing, artificial intelligence, and big data analytics in manufacturing processes is leading to improved productivity, reduced operating costs, and enhanced profit margins.
This has also laid the groundwork for the arrival of Industry 4.0. According to Market.us, the Industry 4.0 market is projected to surpass around $482 billion by 2032, growing at a robust CAGR of 20.7% between 2023 and 2032.
Thus, considering the factors mentioned above, the industry has a positive long-term outlook and should remain in a bright spot this year. With that being said, let us delve into the fundamental aspects of the featured stocks in detail.
ABB Ltd (ABBNY)
Headquartered in Zurich, Switzerland, ABBNY manufactures and sells electrification, automation, robotics, and motion products. Its product portfolio caters to customers in the utilities, industry, transport, and infrastructure sectors. The company’s segments include Electrification; Robotics & Discrete Automation; Motion; and Process Automation.
On June 12, ABBNY acquired Eve Systems GmbH, a prominent company in Munich that specializes in smart home products. This acquisition enables the company to become a frontrunner in smart home products based on the Matter and Thread standards, which facilitate interoperability and wireless connectivity.
This strategic move allows ABBNY to enhance the delivery of secure, intelligent, and energy-efficient homes and buildings. Furthermore, Eve's range of consumer-oriented products, specifically designed for the retrofit market, complements ABBNY's existing offerings.
On May 3, ABBNY also acquired Siemens’ low-voltage NEMA motor business. The acquisition aligns with ABBNY’s profitable growth strategy in the Motion business area. It would also strengthen the company’s position as a leading industrial NEMA motor manufacturer and enhance its ability to serve global customers effectively.
The stock’s trailing-12-month net income margin and ROCE of 9.58% and 23.11% are 50.9% and 65.8% higher than the 6.35% and 13.94% industry averages, respectively. Likewise, its trailing-12-month ROTC of 10.75% is 54.2% higher than the industry average of 6.97%.
For the first quarter that ended March 31, 2023, ABBNY’s revenues increased 12.8% year-over-year to $7.86 billion, while its gross profit grew 19.1% from the year-ago value to $2.72 billion.
The company’s attributable net income and EPS increased 71.5% and 80.6% from the year-ago values to $1.04 billion and $0.56, respectively. Also, its income from operations rose 39.8% from the prior-year quarter to $1.19 billion.
The consensus revenue estimate of $8.14 billion for the second quarter (ending June 30, 2023) reflects an increase of 12.2% year-over-year. The consensus EPS estimate of $0.48 for the current quarter indicates a 139.3% improvement year-over-year.
The stock has gained 49.9% over the past year to close the last trading session at $39.27.
ABBNY’s POWR Ratings reflect this robust outlook. The stock has an overall A rating, 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, Stability, and Sentiment and a B for Quality. In the 80-stock A-rated Industrial – Machinery industry, it is ranked first. To see additional ratings of ABBNY for Value and Momentum, click here.
Tennant Company (TNC)
TNC designs, manufactures, and markets floor cleaning equipment in the Americas, Europe, the Middle East, Africa, and the Asia Pacific. The company offers a suite of products, including floor maintenance and cleaning equipment, detergent-free, and other sustainable cleaning technologies.
On April 25, TNC introduced two new compact models to its lineup of ride-on sweepers: the S680 and S880 sweepers. These new additions are designed to revolutionize the cleaning process by offering simplicity and maneuverability, which should bode well for the company.
On June 15, it paid a quarterly dividend of $0.27 per share to its shareholders. The company’s annual dividend of $1.06 translates to a 1.31% yield on the prevailing prices, while its four-year average dividend yield is 1.34%. Its dividend payouts have grown at CAGRs of 5.9% and 4.5% over the past three and five years, respectively. Also, it has a record of 50 years of consecutive dividend growth.
TNC’s trailing-12-month ROTA and ROTC of 7.30% and 8.69% are 43.9% and 24.6% higher than the industry averages of 5.07% and 6.97%, respectively. Likewise, its trailing-12-month cash per share of $4.93 is 141.1% higher than the industry average of $2.04.
TNC’s net sales increased 18.5% year-over-year to $305.80 million in the fiscal first quarter that ended March 31, 2023, while its gross profit rose 26.9% from the year-ago value to $125.50 million.
The company’s net income amounted to $24.30 million and $1.30 per share, representing increases of 135.9% and 136.4% from the prior-year period, respectively. Also, its adjusted EBITDA increased 71.7% from the prior-year quarter to $47.90.
Street expects TNC’s revenue and EPS for the second quarter (ending June 30, 2023) to increase 4.1% and 25.7% year-over-year to $291.67 million and $1.16, respectively. Also, it surpassed EPS estimates in three of the trailing four quarters, which is impressive.
Over the past year, the stock has gained 41.1% to close the last trading session at $80.77.
TNC’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 Momentum and a B for Growth, Value, Sentiment, and Quality. Within the same A-rated industry, it is ranked #2. Click here to see TNC’s rating for Stability.
Thermon Group Holdings, Inc. (THR)
THR provides engineered industrial process heating solutions for process industries. It offers heat tracing products, such as electric heat tracing cables, steam heating solutions, controls, monitoring and software, instrumentation, project services, industrial heating and filtration solutions, as well as transportation heating products, including track and switch heaters, and gas blower accessories.
In terms of trailing-12-month THR’s EBIT and levered FCF margins of 15.41% and 12.45% are 59% and 138.8% higher than the industry averages of 9.69% and 5.21%, respectively. Likewise, its trailing-12-month gross profit margin of 42.99% is 44.1% higher than the industry average of 29.83%.
During the fourth quarter of fiscal 2023 that ended March 31, 2023, THR’s sales increased 19.4% year-over-year to $122.48 million, while its gross profit rose 25.3% from the year-ago value to $51.53 million.
The company’s adjusted net income and adjusted EPS amounted to $13.99 million and $0.41, up 35% and 32.3% from the prior year period, respectively. Also, its adjusted EBITDA increased 36.8% from the prior-year quarter to $25.09 million.
Analysts expect THR’s revenue and EPS for the fiscal 2024 first quarter (ending June 30, 2023) to increase 4.5% and 16% year-over-year to $99.72 million and $0.29, respectively. Additionally, it surpassed the revenue and EPS estimates in each of the trailing four quarters, which is excellent.
THR’s shares have gained 46.1% over the past nine months and 66.7% over the past year to close the last trading session at $25.36.
It’s no surprise that THR has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. It has an A grade for Momentum and Sentiment and a B for Growth and Quality. Out of 80 stocks in the same industry, it is ranked #3.
In addition to the POWR Ratings we’ve stated above, we also have THR’s ratings for Value and Stability. Get all THR ratings here.
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ABBNY shares were trading at $39.69 per share on Thursday afternoon, up $0.42 (+1.07%). Year-to-date, ABBNY has gained 32.55%, versus a 15.58% 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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