5 Metal Fabrication Stocks to Watch Amid Improving Industry Trends
The Zacks Metal Products - Procurement and Fabrication industry is poised well to gain from growth 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, The Timken Company TKR, ESAB Corporation ESAB, Worthington Industries WOR and TriMas TRS 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.
Industry Description
The Zacks Metal Products - Procurement and Fabrication industry primarily comprises metal processing and fabrication service providers, which 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 in shaping individual pieces of metal, and welding and assembling to join parts. The companies either use one of these processes or a combination of all. 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 the 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 inched down 0.5% in May 2023. Over the 12 months ended May 2023, the production of fabricated metal products was down 0.1%. Overall, industrial production gained 0.2% over the same period. In June, the Institute for Supply Management’s manufacturing index touched 46%, contracting for the eighth month in a row. The average for the 12 months ended June 2023 was 48.8%. Amid the ongoing uncertainty in the global economy and persisting inflationary trends, customers have been curbing spending. The industry has also been bearing the brunt of supply-chain issues. 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 was reported to be faster for the ninth consecutive month in June. The Supplier Deliveries Index registered 45.7% growth in June. Once the situation normalizes, strong 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 levels of inflation, 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 lowering 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, 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 10-stock group within the broader Industrial Products sector, currently carries a Zacks Industry Rank #61, which places it in the top 24% of the 251 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 look at the industry’s recent stock-market performance and the valuation picture.
Industry Versus Broader Market
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 soared 44.2% compared with the sector’s growth of 27.3% and the Zacks S&P 500 composite’s rise of 16.5%.
One-Year Price Performance
Industry's Current Valuation
Based on the forward 12-month EV/EBITDA ratio, a commonly used multiple for valuing the Metal Products - Procurement and Fabrication companies, the industry is currently trading at 15.13 compared with the S&P 500’s 11.64 and the Industrial Products sector’s forward 12-month EV/EBITDA of 14.54. 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 traded as high as 15.42 and as low as 4.93, the median being 7.69.
5 Metal Products - Procurement and Fabrication Stocks to Keep Tabs on
Worthington: The company recently reported the fourth-quarter fiscal 2023 results, delivering record earnings per share, aided by a strong performance of its Steel Processing business. The healthy demand in its key end markets bodes well for the company. Its proactive steps to cut costs will aid the results. Focus on core businesses, efforts to grow in new markets and acquisitions 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 early 2024. 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 54% over the past year.
The Zacks Consensus Estimate for Worthington’s current-year earnings has moved up 9% over the past 90 days. The Columbus, OH-based company has a trailing four-quarter earnings surprise of 14.9%, on average. WOR currently flaunts a Zacks Rank #1 (Strong Buy).
You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: WOR
AB SKF: The company delivered an organic sales growth of more than 10% in the first quarter of 2023, aided by solid demand across all regions. Most of the company’s targeted high-growth segments, such as railway, renewable energy and aero¬space, contributed double-digit growth. 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 magnetic bearings business had a record order intake in 2022, driven by new energy applications. Given that magnetic bearings have been playing a central role in green industries, the company is now focused on growing this business. It has recently announced that it is investing in a manufacturing site in Tangier, Morocco, to meet the rising demand for the same. Backed by these tailwinds, the company’s shares have gained 13% 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 20% over the past 90 days. The consensus estimate indicates year-over-year growth of 21.8%. The company currently carries a Zacks Rank #2 (Buy).
Price and Consensus: SKFRY
ESAB: In 2022, the company was launched as a public company. Through the year, 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. It continues its track of innovation and product introductions. The company launched the game-changing Renegade VOLT battery-powered welder in partnership with DEWALT. For the first time, welders have a battery-powered welding machine that operates on interchangeable, rechargeable power tool batteries. This offering strengthens ESAB’s equipment portfolio and meets a key customer need for improved transportability, and is thus expected to improve ESAB’s margins. The company is progressing toward its goal of creating a faster-growing, higher-margin and less-cyclical business. The company’s shares have surged 69% 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 2.3% over the past 90 days. The company has a trailing four-quarter earnings surprise of 11.8%. ESAB currently has a Zacks Rank #3 (Hold) and a long-term estimated earnings growth of 4.7%.
Price and Consensus: ESAB
Timken: The company has been witnessing business wins and strong customer demand across most of its sectors. Its diversity, in terms of end-market, customer and geography, product innovation, and engineering expertise, provides it with a competitive edge. Earnings growth also continues to be supported by price realization, growth initiatives and operational excellence initiatives. The stock has appreciated 73.8% over the past year. Timken continues to pursue strategic acquisitions to broaden its portfolio and capabilities across diverse markets, focusing on bearings, adjacent power transmission products and related services. TKR’s efforts to grow its wind and solar businesses are acting as a key catalyst, considering the growing demand for renewable energy.
Timken is based in North Canton, OH, and designs, manufactures and manages engineered bearings and power transmission products worldwide. The Zacks Consensus Estimate for TKR’s current-year earnings has moved up 1% over the past 90 days. The figure indicates year-over-year growth of 20.4%. TKR has a trailing four-quarter earnings surprise of 15.7%, on average. The stock has an estimated long-term earnings growth rate of 12% and a Zacks Rank #3.
Price and Consensus: TKR
TriMas: In the Specialty Products segment, the company is witnessing sales growth as a result of higher demand for steel cylinders and engines, and compressors used in construction and HVAC applications. It is also seeing increased sales of engines, compressors and replacement parts for stationary power generation units, and applications for natural gas and crude oil extraction as a result of higher crude and natural gas pricing, and increased oil-field activity in North America. The order intake and backlog remain strong in the Aerospace segment. TriMas has a strong pipeline of product and process innovation, which will sustain long-term growth. Its strategy is to accelerate growth through acquisitions, particularly in its Packaging and Aerospace platforms, backed by long-term growth and performance profiles. The company has been focusing on leveraging the TriMas Business Model, which was implemented in late 2016 to improve performance of its businesses. TRS shares have gained 2.5% in a year.
Bloomfield Hills, MI-based TriMas s a diversified global designer, manufacturer and distributor of engineered and applied products that serve a variety of industrial, commercial and consumer end markets worldwide. The Zacks Consensus Estimate for the company’s current-year earnings has moved up 3% over the past 90 days. The company currently carries a Zacks Rank #3.
Price and Consensus: TRS
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AB SKF (SKFRY) : Free Stock Analysis Report
Worthington Industries, Inc. (WOR) : Free Stock Analysis Report
Timken Company (The) (TKR) : Free Stock Analysis Report
TriMas Corporation (TRS) : Free Stock Analysis Report
ESAB Corporation (ESAB) : Free Stock Analysis Report
