Fundamentally sound industrial stocks Eaton Corporation plc (ETN), ITT Inc. (ITT), and Twin Disc, Incorporated (TWIN) could help investors find new ways to level up their investment strategy. Before delving into the fundamentals of these stocks, let’s look at the industrial sector.
The pandemic and the Fed’s aggressive monetary policy tightening hit the industrial sector hard, but as the world continues to recover, so does industry. As per the data released by the Federal Reserve, the U.S. industrial production increased 0.2% year-on-year in May, following an upwardly revised 0.4% rise in April.
Thanks to factors like increased infrastructure spending, rising demand for renewable energy, and the continued growth of e-commerce, the industrial sector is poised for growth.
Rapid technological advances such as 3D printing, artificial intelligence, and big data analytics used in manufacturing processes are leading to higher productivity, reduced operating costs, and enhanced profit margins.
Driven by this, the global industrial machinery market grew from $506.67 billion in 2022 to $545.67 billion in 2023, exhibiting a CAGR of 7.7%. Further, the market is expected to reach $708.30 billion by 2027, growing at a CAGR of 6.7%.
Despite some softness in manufacturing activities, demand across key end markets, including industrial, commercial aerospace, and automotive aftermarkets, has remained resilient. This, coupled with improvement in supply chains, has helped the industrial companies stay afloat.
Last month, the Commerce Department reported that core capital goods orders increased by 2.7% year-on-year in April, raising optimism that business spending on equipment could recover in the second quarter after consecutive declines.
Given this backdrop, let’s discuss the stocks mentioned above in detail:
Eaton Corporation plc (ETN)
Based in Dublin, Ireland, ETN is a power management company operating through various segments such as Electrical Americas and Electrical Global; Aerospace; Vehicle, and eMobility. It provides electrical components, industrial components, power distribution, pumps, motors, hydraulic power units, hoses and fittings, superchargers, engine valves, valve actuation systems, etc.
On June 14, the company 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 estimated to reduce industrial maintenance costs by up to 25% through the implementation of digitally enabled predictive maintenance technologies.
On May 9, ETN revealed its ongoing commitment to expand and enhance its European eMobility business design capabilities, technologies, and operations to provide comprehensive support to global manufacturers of electrified vehicles.
These upgrades should support ETN’s efforts in delivering electric vehicle solutions to passenger cars, commercial vehicles, and off-highway OEMs globally. ETN aims to strengthen its position as a trusted partner for OEMs seeking innovative and reliable electric vehicle solutions through these strategic enhancements.
On April 24, ETN acquired a 49% ownership stake in Jiangsu Ryan Electrical Co. Ltd., a prominent power distribution and sub-transmission transformers manufacturer in China.
Howard Liu, the President of ETN's Asia-Pacific Region, Electrical Sector, expressed confidence in the partnership, highlighting the synergy between Ryan's exceptional product portfolio and ETN's extensive global distribution network.
Moreover, the combined strengths of the two companies would enable them to provide effective solutions for the ongoing transition to renewable energy and increased electrical usage across various applications.
ETN’s net sales increased 13.2% year-over-year to $5.48 billion in the first quarter (ended March 31, 2023). The company’s adjusted earnings grew 16% from the prior-year quarter to $753 million and $1.88 per share, respectively. Also, its income before income taxes rose 23.1% from the year-ago value to $762 million.
During the same period, its total current assets of $9.14 billion increased 4.5% compared to $8.75 billion for the period that ended December 31, 2022.
Street expects ETN’s revenue and EPS for the second quarter (ending June 30, 2023) to increase 10.2% and 12.3% year-over-year to $5.75 billion and $2.10, respectively. Moreover, it surpassed the EPS estimates in each of its trailing four quarters, which is excellent.
Its EBITDA and net income have increased at CAGRs of 5.7% and 6.5% over the past three years, respectively. Also, its levered FCF has improved at a CAGR of 27.5% over the same period.
ETN’s shares have gained 50.3% over the past year to close the last trading session at $196.89.
ETN’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which translates to 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 Growth, Sentiment, and Quality. Among the 80 stocks in the A-rated Industrial - Machinery industry, it is ranked #13. To see additional POWR Ratings of ETN for Value, Momentum, and Stability, click here.
ITT Inc. (ITT)
ITT is a manufacturer of engineered critical components and customized technology solutions for the transportation, industrial and energy markets. It operates through three segments: Motion Technologies (MT); Industrial Process (IP); and Connect & Control Technologies (CCT).
On May 3, ITT acquired Micro-Mode Products, Inc., a leading provider of high-bandwidth Radio Frequency (RF) connectors for harsh environment defense and space applications, for approximately $80 million.
With proven engineering and high-frequency design capabilities, this addition is expected to enhance ITT’s product portfolio and customer base, specifically for long-term defense programs.
In addition, it also expands ITT’s existing North America connectors platform, a part of its CCT segment, and provides further access to attractive segments and applications in space and defense, with a total addressable market of more than $4 billion.
On March 20, the company signed a 10-year strategic agreement for the supply of aftermarket brake pads to Continental AG, a leading global automotive supplier. The agreement is expected to generate more than $1 billion in revenue over the term.
For the first quarter that ended April 1, 2023, ITT’s total revenue increased 9.9% year-over-year to $797.90 million. Its gross profit rose 19.9% from the year-ago value to $261.90 million.
The company’s non-GAAP income and EPS from continuing operations grew 17.4% and 20.6% from the prior-year quarter to $97.30 million and $1.17 per share, respectively.
Also, its adjusted operating income increased by 20.3% from the year-ago value to $140 million.
The consensus EPS estimate of $1.17 for the second quarter (ending June 30, 2023) represents a 19.3% improvement year-over-year. The consensus revenue estimate of $792.26 million for the ongoing quarter represents an 8% increase from the same period last year.
Additionally, it has a promising earnings surprise history, as it surpassed the EPS estimates in three of the trailing four quarters.
Its EBITDA and net income have grown at CAGRs of 5.8% and 5% over the past three years, respectively, while its EPS has improved at a CAGR of 7.1% in the same period.
Over the past year, the stock has gained 29.4% to close the last trading session at $88.80.
ITT’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It has an A grade for Momentum and a B for Growth, Stability, and Quality. Within the same A-rated industry, it is ranked #11. Click here to see ITT’s rating for Value and Sentiment.
Twin Disc, Incorporated (TWIN)
TWIN designs, manufactures, and sells marine and heavy-duty off-highway power transmission equipment through Manufacturing; and Distribution segments. Its offerings include marine transmissions, azimuth drives, surface drives, propellers, and boat management systems, as well as power-shift transmissions.
During the third quarter (ended March 31, 2023), TWIN’s total net revenues increased 24.4% year-over-year to $73.77 million, while its gross profit rose 8.9% from the year-ago value to $19.26 million.
The company’s income from operations and attributable net income amounted to $4.61 million and $2.67 million, representing increases of 50.7% and 19.9% from the prior-year quarter, respectively. Also, its net income per share stood at $0.20, up 17.6% year-over-year.
Its EPS is expected to increase by 8% per annum in the next five years. TWIN’s revenue has increased at CAGRs of 1.2% and 4.1% over the past three and five years, respectively, while its EBITDA has grown at a CAGR of 33.5% over the past three years.
The stock has gained 25.9% over the past year to close the last trading session at $11.90.
It’s no surprise that TWIN 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 80 stocks in the same industry, it is ranked #9.
In addition to the POWR Ratings we’ve stated above, we also have TWIN’s ratings for Value, Momentum, and Stability. Get all TWIN ratings here.
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ETN shares were trading at $194.02 per share on Friday afternoon, down $2.87 (-1.46%). Year-to-date, ETN has gained 24.87%, versus a 15.98% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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