3 Metal Fabrication Stocks to Watch as Industry Trends Improve
The Zacks Metal Products - Procurement and Fabrication industry is poised to gain from demand in the end-use sectors, such as manufacturing, aerospace and automotive. The recent indications of easing supply-chain disruptions instill optimism.
Players like AB SKF SKFRY, ESAB Corporation ESAB and Worthington Industries WOR have witnessed order growth and delivered improved results despite the inflationary scenario and supply-chain woes. Solid end-market demand, efforts to gain market share and investment in automation should aid growth for these companies. Their focus on cost management and improving efficiency will boost margins.
About the Industry
The Zacks Metal Products - Procurement and Fabrication industry primarily comprises metal processing and fabrication services providers that transform metal into metal parts, machinery, or components used across various other industries. Their processes include forging, stamping, bending, forming and machining, which are used to shape individual pieces of metal, and welding and assembling to join parts. The companies either use one of these processes or a combination of these. The most common raw materials utilized by metal fabrication companies include plate metal, formed or expanded metal, tube stock, welding wire or rod, and casting. The industry players serve an array of markets, including construction, mining, aerospace and defense, automotive, agriculture, oil and gas, electronics/electrical components, industrial equipment, and general consumer.
What's Shaping the Future of Metal Products - Procurement and Fabrication Industry,
Easing Supply-Chain Snarls to Bring Relief: Per the Fed’s latest industrial production report, the aggregate production of fabricated metal products in the United States edged down 0.4% in August 2023. Over the 12 months ended May 2023, the production of fabricated metal products was down 0.9%. Overall, industrial production gained 0.2% over the same period. Per the Federal Reserve, industrial production was up 0.7% in July 2023 and 0.4% in August, following declines in the past two months. In September, the Institute for Supply Management’s manufacturing index was 49%, higher than the 47.6% reported for August. Even though the U.S. manufacturing sector has been contracting for 11 months in a row, this uptick in the index indicates a slower rate of contraction. On a positive note, some of the industry players recently noted that supply-chain issues are easing. The delivery performance of suppliers to manufacturing organizations has been improving for 12 straight months in September. Once the situation normalizes, demand in the metal Products - Procurement and Fabrication industry’s diverse end markets will drive its growth.
Pricing Actions to Combat High Costs: The industry has been experiencing significant inflation levels, including higher prices for labor, freight and fuel. The companies are currently witnessing labor shortages for some positions and incurring steep labor costs to meet demand. The industry players are focusing on pricing actions, cost-cutting measures, efforts to improve productivity and efficiency, and the diversification of the supplier bases to mitigate some of these headwinds.
Automation & End-Market Growth to Act as a Catalyst: The industry’s customer-focused approach to providing cost-effective technical solutions and automation to increase efficiency and lower labor costs, as well as the development of the latest and innovative products, should drive growth in the days ahead. Growth in the end-use sectors, such as manufacturing, aerospace and automotive, is anticipated to benefit the metal fabrication market over the next few years. Developing countries hold promise due to rapid industrialization. This, in turn, is likely to create demand.
Zacks Industry Rank Indicates Bright Prospects
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates upbeat prospects in the near term. The Zacks Metal Products - Procurement and Fabrication industry, which is a 12-stock group within the broader Industrial Products Sector, currently carries a Zacks Industry Rank #74, which places it at the top 30% of 250 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Versus Broader Sector
The Zacks Metal Products - Procurement and Fabrication industry has outperformed its sector and the Zacks S&P 500 composite over the past year.
Over this period, the industry has gained 21.5% compared with the sector’s growth of 18.4%. Meanwhile, the Zacks S&P 500 composite has risen 16.9%.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month EV/EBITDA ratio, which is a commonly used multiple for valuing Metal Products - Procurement and Fabrication companies, the industry is currently trading at 26.20 compared with the S&P 500’s 10.68 and the Industrial Products sector’s forward 12-month EV/EBITDA of 13.88. This is shown in the charts below.
Enterprise Value/EBITDA (EV/EBITDA) F12M Ratio
Enterprise Value/EBITDA (EV/EBITDA) F12M Ratio
Over the last five years, the industry has traded as high as 26.63 and as low as 4.93, with the median being at 8.83.
3 Metal Products - Procurement and Fabrication Stocks to Keep a Tab on
ESAB: The company has been simplifying its product lines, which is fueling growth and profitability. It continues to drive innovation, growth, margin expansion and higher cash flow using its ESAB Business Excellence system. In 2022, the company furthered its M&A strategy with the buyouts of Ohio, Therapy Equipment and Swift-Cut, strengthening its gas-control and fabrication technology businesses. The integration of these acquisitions is on track and performing above expectations. The company is progressing toward its goal of creating a faster-growing, higher-margin and less-cyclical business. Its shares have surged 89% over the past year.
North Bethesda, MD-based ESAB Corp engages in the formulation, development, manufacturing, and supply of consumable products and equipment for use in cutting, joining and automated welding, as well as gas-control equipment. The Zacks Consensus Estimate for ESAB’s current-year earnings has moved north by 5.3% over the past 90 days. The company has a trailing four-quarter earnings surprise of 13.6%. ESAB currently has a long-term estimated earnings growth of 10.8%. It currently sports a Zacks rank #1 (Strong Buy).
You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: ESAB
AB SKF: The company delivered record-high net sales, adjusted operating profit and cash flow in the second quarter of 2023. It has been witnessing solid demand in its targeted high-growth segments, such as railway, electrical vehicles and aerospace. The company is set to deliver high-single-digit organic sales growth in fiscal 2023. SKFRY, through its ongoing portfolio management and pricing activities, has been able to offset cost inflationary pressures on its margins. The company is progressing well in its strategy to simplify its portfolio, the most recent announcement being the divestment of its coolant pump operations, Spandau Pumpen. Given that magnetic bearings have been playing a central role in green industries, the company is now focused on growing this business. It is investing in a manufacturing site in Tangier, Morocco, to meet the rising demand for the same. Backed by these tailwinds, SKFRY shares have gained 12% in a year.
AB SKF engages in the design, development and manufacture of bearings, seals, lubrication systems and services worldwide. The Zacks Consensus Estimate for earnings for 2023 for the Gothenburg, Sweden-based company has moved up 6% over the past 90 days. The consensus estimate indicates year-over-year growth of 18%. The company currently carries a Zacks Rank #3 (Hold).
Price and Consensus: SKFRY
Worthington: The company recently reported strong first-quarter fiscal 2024 results, driven by the solid performance of its Steel Processing and Building Products segments. The healthy demand in its key end markets bodes well for the company. It is building on its capabilities in automation, analytics and advanced technologies, which, in turn, will help it stay ahead of the curve. Its proactive steps to cut costs and strong end-market demand will aid the results. Focus on core businesses and efforts to grow in new markets will aid growth. In September 2022, the company announced that its board of directors approved a plan to pursue a separation of the company’s Steel Processing business, which is expected to be completed by December 2023. This plan, referred to as “Worthington 2024,” will result in two independent, publicly traded companies that are more specialized, and with enhanced prospects for growth and value creation. The company’s shares have gained 37% over the past year.
The Zacks Consensus Estimate for Worthington’s current-year earnings has been unchanged over the past 90 days. The company has a trailing four-quarter earnings surprise of 17.6%, on average. WOR currently carries a Zacks Rank #3.
Price and Consensus: WOR
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
AB SKF (SKFRY) : Free Stock Analysis Report
Worthington Industries, Inc. (WOR) : Free Stock Analysis Report
ESAB Corporation (ESAB) : Free Stock Analysis Report
