4 Industrial Stocks Set to Outperform Q3 Earnings Estimates
The third-quarter 2023 earnings season has just begun for the Zacks Industrial Products sector. The handful of companies that released earnings so far reported mixed results. While softness in end markets weighed on the top-line results, lower costs due to a deceleration in inflation aided the bottom line.
Amid a softer demand environment, the latest Earnings Trends report reflects muted earnings and revenue growth for the S&P 500 companies within the Industrial Products sector. Third-quarter 2023 earnings are expected to increase 2.5% year over year for the sector compared with a 20.1% rise recorded in the second quarter of 2023. Revenues for the sector are estimated to climb 1.9% year over year compared with a 5.9% increase reported in the second quarter.
Out of the 22.2% of the S&P 500 companies within the Industrial Products sector that have reported earnings numbers, 83.3% beat on earnings, while 33.3% surpassed revenue estimates. Around 33% of these companies beat on both earnings and revenues.
Below, we have discussed industrial companies like Emerson Electric Co. EMR, Ingersoll Rand IR, Stanley Black & Decker SWK and Zebra Technologies ZBRA that are set to trump earnings estimates this reporting cycle.
Key Factors for Q3
A low-demand environment, thanks to weakness in the manufacturing sector, is likely to weigh on the third-quarter performances of sector participants. Per the Institute for Supply Management’s latest report, the Manufacturing Purchasing Manager's Index touched 49% in September, reflecting a contraction in manufacturing activities for the 11th consecutive month. A figure below 50 indicates a contraction in manufacturing activity. The New Orders Index has remained in contraction territory for the past several months.
Reduced consumer spending, thanks to high-interest rates, has been taking a toll on companies with exposure to the residential, electronics and consumer end markets, and the third quarter is no exception.
On the other hand, companies with exposure to the Aerospace end market have been benefiting from strong commercial aftermarket demand, thanks to continued recovery in commercial flight hours. Resiliency in the nonmetallic mineral products; food, beverage & tobacco products; textile mills; primary metals; and petroleum & coal products is likely to drive the industrial sector’s results in the to-be-reported quarter.
Benefits of improving supply chains, pricing actions and cost-control initiatives are expected to get reflected in the industrial companies’ third-quarter results.
How to Pick Winners?
Given the large number of players operating in the industrial sector, picking the right stocks is not an easy task. But our proven model makes it fairly simple. One can shortlist with the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), which increases the odds of an earnings beat. You can uncover the best stocks to buy or sell before they report earnings with our Earnings ESP Filter.
Earnings ESP — the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate — is our proprietary methodology for determining the stocks with maximum chances of delivering positive earnings surprises in their next announcements. Our research shows that for stocks with this perfect combination, the chances of a beat are as high as 70%.
Our Choices
Below, we list four industrial stocks that have the right mix of elements to pull off positive surprises this earnings season.
Emerson has an Earnings ESP of +0.02% and sports a Zacks Rank #1. The company is scheduled to release fourth-quarter fiscal 2023 (ended Sep 30, 2023) financial numbers on Nov 7. You can see the complete list of today’s Zacks #1 Rank stocks here.
Strong demand in the process and hybrid markets, solid backlogs and improving supply chains are likely to drive Emerson’s fiscal fourth-quarter results.
Emerson Electric Co. Price and EPS Surprise
Emerson Electric Co. price-eps-surprise | Emerson Electric Co. Quote
Ingersoll Rand has an Earnings ESP of +0.36% and a Zacks Rank #3. The company is slated to release third-quarter 2023 results on Nov 1.
Solid underlying demand and higher orders across the product portfolio of compressors and power tools and lifting are expected to buoy Ingersoll Rand’s results in the to-be-reported quarter. Contributions from the August 2023 acquisition of Howden Roots and the January 2023 acquisition of SPX FLOW’s Air Treatment business are expected to boost the top line.
Ingersoll Rand Inc. Price and EPS Surprise
Ingersoll Rand Inc. price-eps-surprise | Ingersoll Rand Inc. Quote
Stanley Black has an Earnings ESP of +1.84% and a Zacks Rank #2. The company is scheduled to release third-quarter 2023 results on Oct 27.
Cost-control measures are likely to buoy Stanley Black’s bottom line in the to-be-reported quarter. The company is expected to put up a healthy margin performance due to supply-chain transformation and inventory reduction efforts.
Stanley Black & Decker, Inc. Price and EPS Surprise
Stanley Black & Decker, Inc. price-eps-surprise | Stanley Black & Decker, Inc. Quote
Zebra Technologies has an Earnings ESP of +0.33% and a Zacks Rank #3. The company will announce third-quarter 2023 results on Oct 31.
Growth across data capture solutions, services, software and RFID (radio frequency identification) and improving supply chains are expected to drive Zebra Technologies’ third-quarter results. Cost-reduction efforts are likely to drive the bottom line.
Zebra Technologies Corporation Price and EPS Surprise
Zebra Technologies Corporation price-eps-surprise | Zebra Technologies Corporation Quote
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Emerson Electric Co. (EMR) : Free Stock Analysis Report
Stanley Black & Decker, Inc. (SWK) : Free Stock Analysis Report
Ingersoll Rand Inc. (IR) : Free Stock Analysis Report
Zebra Technologies Corporation (ZBRA) : Free Stock Analysis Report
