3 Hot Earnings Surprises in Metal Fabrication
The direct correlation between increasing economic activity and the prospects of the metal fabrication industry implies that the industry is set to do well this year, as economic numbers show improvement across the board. The expected increase in demand for metal structures that the industry deals with by the cutting, bending, and assembling processes should bode well for the industry players.
With the overall improvement in the, energy, oil & gas, residential and construction markets and the aerospace industry, where the fabricated metals are primarily used, the demand for metal fabrication is increasing.
The performance of the metal fabrication sector varies from company to company, according to the different economic factors, the range of markets catered to and each industry member's specific area of concentration. In the recent past, the metal fabrication sector faced severe headwinds with the global turmoil in the industrial goods sector.
According to a report by the Manufacturers Alliance for Productivity and Innovation (MAPIF), fabricated metals production increased 4% in 2013. Almost all major types of fabricated metal products witnessed a year-over-year surge in production in the year. Forging and stamping was up 1%, architectural and structural metals rose 7%, machine shop turned products and fasteners grew 2% and coating, engraving and heat treating grew 3% in the last quarter of 2013 versus the same period a year ago.
Further, the fabricated materials production is expected to grow 3% in 2014 and 5% in 2015. Production is predicted to grow at an average annual rate of 3% from 2016 to 2018.
Given the solid prospects, the industry offers solid investment opportunities at this point. Particularly, metal fabrication stocks with the potential to beat earnings this quarter should see faster price appreciation in the short term.
The Way to Pick Right Stocks
Picking the right stocks within the industry might be a difficult task unless one knows the tactic to narrow down the list. One way to do that is by choosing stocks that have the combination of a favorable Zacks Rank – Zacks Rank #3 (Hold) or better – and a positive Earnings ESP.
Earnings ESP is our proprietary methodology for identifying stocks that have high chances of surprising with their upcoming earnings announcement. It shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate.
Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.
Here are 3 major metal fabrication stocks that have the right combination of elements to deliver earnings surprises in their upcoming announcements.
Precision Castparts Corp. (PCP) is a Zacks Rank #2 (Buy) stock with an earnings ESP of +0.63%. The Zacks Consensus Estimate for first-quarter 2014 is $3.20 per share.
Precision Castparts is a manufacturer of complex metal components and products – providing high-quality investment castings, forgings and fasteners/fastener systems for critical aerospace and industrial gas turbine (IGT) applications. It also supplies investment castings and forgings for general industrial, automotive, armament, medical and other applications.
The company has registered an average positive earnings surprise of 0.25% over the trailing four quarters.
-- Precision is scheduled to announce its fiscal fourth-quarter 2014 results before the opening bell on May 8.
Constellium N.V. (CSTM) carries a Zacks Rank #3 and has an earnings ESP of +1.82%. The Zacks Consensus Estimate for the first quarter is pegged at 55 cents per share.
Based in Netherlands, Constellium primarily engages in the design, manufacture, and sale of specialty rolled and extruded aluminum products.
-- Constellium is expected to announce its fiscal first-quarter 2014 results before the market opens on Jun 16.
Worthington Industries, Inc. (WOR) carries a Zacks Rank #3 and has an earnings ESP of +1.52%. The Zacks Consensus Estimate for the first quarter is 66 cents per share.
Headquartered in Columbus, OH, Worthington Industries, Inc. is a leading metals manufacturing company, focusing on value-added steel processing and manufactured metal products in the United States, Canada, Europe and internationally.
-- Worthington is expected to announce its fiscal fourth quarter 2014 results after the market closes on Jun 26.
The overall situation for the metal fabrication industry is expected to improve through 2014 and beyond. Demand for forging and casting of various metals is expected to grow in the U.S. on the back of an improving global economy and a strong momentum in the automotive markets and the burgeoning demand for increased aircraft production. Further, the turnaround in the construction sector will definitely provide the much-needed boost to the fabricated metals industry.
Read the analyst report on CSTM
Read the analyst report on WOR
Read the analyst report on PCP
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