5 Stocks to Watch in the Promising Construction & Mining Equipment Industry
The Zacks Manufacturing - Construction and Mining industry is poised well to gain from the stepped-up infrastructure investment spending in the United States and solid demand from the mining sector, fueled by the energy transition trend. Indications of easing supply-chain issues increase optimism.
Players like Caterpillar Inc. CAT, Komatsu KMTUY, Terex Corporation TEX, Astec Industries, Inc. ASTE and Manitowoc MTW are likely to ride on these demand trends. They are anticipated to benefit from their efforts to bring technologically advanced products to the market. They have also been focusing on improving productivity and efficiency to counter cost pressures.
About the Industry
The Zacks Manufacturing - Construction and Mining industry comprises companies that manufacture and sell construction, mining and utility equipment. They support customers using machinery in the construction of commercial, institutional and residential buildings, and infrastructure projects. Their equipment is also utilized in underground mining, drilling and mineral processing, and surface mining to extract and haul copper, iron ore, coal, oil sands, aggregates, gold, and other minerals and ores. Their products are varied, including loaders, pavers, dozers, excavators, concrete mixer trucks, crushing, pulverizing, and screening equipment, tractors and cranes. Industry participants support oil and gas, power generation, marine, rail, and industrial applications through their reciprocating engines, generator sets, gas turbines and turbine-related services.
Trends Shaping the Future of the Manufacturing - Construction and Mining Industry
Easing Supply-Chain Disruptions Raise Hope: Per the Federal Reserve, industrial production was down 0.2% in May 2023, while manufacturing output inched up 0.1%. Overall, industrial production rose 0.2% over the 12 months ended May 2023. In May, the Institute for Supply Management’s manufacturing index was 46.9%, contracting for the seventh month in a row. The average for the past 12 months (ended May 2023) is 49.4. Amid the ongoing uncertainty in the global economy and persisting inflationary trends, customers have been curbing their spending. The manufacturing sector has also been bearing the brunt of supply-chain issues. On a positive note, some industry players have recently noted that supply-chain issues have been easing and lead times have been improving. The delivery performance of suppliers to manufacturing organizations was reported to be faster for the eighth consecutive month in May. The Supplier Deliveries Index registered 43.5% growth in May, indicating the fastest supplier delivery performance since March 2009, when it had touched a trough of 43.2%. As the situation eases back to normalcy, diverse end-market demand will drive the industry’s growth.
Demand Strength in Mining & Construction to Drive the Industry: The intensifying global focus on shifting from fossil fuels to zero emissions will require a large number of commodities, which, in turn, will support mining equipment demand in the years to come. The U.S. government's plans to increase investment in infrastructure construction, particularly in critical subsectors, such as transportation, water and sewerage, and telecommunications, should support demand in the coming years.
Higher Pricing, Cost Cuts to Boost Margins: The industry is facing input cost inflation, and transport and logistic costs. Industry players are focusing on pricing actions and efforts to improve productivity and efficiency. They are constantly implementing cost-reduction actions, which are likely to help sustain margins in this scenario. The companies are focused on streamlining their operations and realigning around high-growth key markets or customer segments to enhance their performances.
Investment in Digital Initiatives a Key Catalyst: The industry participants are investing in digital initiatives like AI, cloud computing, advanced analytics and robotics. Digital transformation aids organizations in boosting productivity,y and increasing efficiency, reliability and safety, thereby enriching customer satisfaction. With the pressing need to cut carbon emissions, companies worldwide are relying more on autonomous machinery. Thus, players in the Manufacturing - Construction and Mining industry are stepping up their research and technological capabilities to bring products into the market equipped with the latest technology.
Zacks Industry Rank Indicates Upbeat Prospects
The group’s Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates bright prospects in the near term. The Zacks Manufacturing - Construction and Mining industry, a seven-stock group within the broader Zacks Industrial Products sector, currently carries a Zacks Industry Rank #6, which places it at the top 2% of 250 Zacks industries.
Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. So far this year, the industry’s earnings estimates for the current year have been revised upward by 16%.
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 Manufacturing - Construction and Mining industry has outperformed its sector and the Zacks S&P 500 composite over the past year. Over this period, the industry has gained 36.2% compared with the sector’s rise of 23%. The Zacks S&P 500 composite has rallied 15.7% in the same time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month EV/EBITDA ratio, a commonly used multiple for valuing Manufacturing - Construction and Mining companies, we see that the industry is currently trading at 9.57 compared with the S&P 500’s 11.64 and the Industrial Products sector’s trailing 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 has traded as high as 14.83 and as low as 7.04, the median being 10.19.
5 Manufacturing - Construction & Mining Stocks to Keep a Close Eye on
Komatsu: The company has been witnessing strong demand for construction, mining and utility equipment, which, along with higher selling prices, led to improved revenues and segmental profits in fiscal 2022 (ended Mar 31, 2023). This has been instrumental in the 21% increase in its share price over the past year. In North America, demand should be steady in residential and non-residential, as well as road and traffic infrastructure. For industrial machinery, sales are likely to be supported by strong sales of the Excimer laser-related business for the semiconductor manufacturing industry. Its efforts to provide zero-emission solutions for its global customers will likely be a growth driver. KMTUY will benefit from its cost-reduction efforts. Komatsu is working on expanding offerings for underground hard rock mining and introducing products that offer automation and autonomous operation of equipment. It has also been active on the acquisition front, having added Mine Site Technologies and Bracke of Sweden in 2022 and the buyout of GHH in Germany in the pipeline.
Headquartered in Tokyo, Japan, Komatsu manufactures and sells construction, mining and utility equipment, and forest and industrial machinery worldwide. The Zacks Consensus Estimate for the company’s fiscal 2023 earnings has been revised upward by 14.7% over the past 60 days. The consensus estimate indicates 0.4% year-over-year growth. The company has a trailing four-quarter earnings surprise of 24%, on average. KMTUY has an estimated long-term earnings growth rate of 5%. It currently sports a Zacks Rank #1 (Strong Buy).
You can see the complete list of today’s Zacks #1 Rank stocks here.
Price & Consensus: KMTUY
Terex: The company’s backlog has been on an uptrend over the past nine quarters and was at $4.1 billion at the end of the first quarter of 2023, aided by improvement in both segments. This, along with solid demand, pricing and cost-saving actions, positions the company well for improved results. TEX is progressing well on its “Execute, Innovate, Grow" strategy, which should drive growth. In sync with this, it is investing in innovative products, digital innovation, the expansion of manufacturing facilities and strategic acquisitions. Terex is focused on aligning production and cost structure across its segments in response to the customer demand environment, while aggressively managing costs and working capital. Shares of TEX have gained 113% over the past year.
Norwalk, CT-based Terex manufactures and sells aerial work platforms and material processing machinery worldwide. The Zacks Consensus Estimate for 2023 earnings indicates year-over-year growth of 38.2%. Earnings estimates have moved north 22% over the past 60 days. TEX has a trailing four-quarter earnings surprise of 27.1%, on average, and an estimated long-term earnings growth rate of 17.6%. The company flaunts a Zacks Rank #1 at present.
Price & Consensus: TEX
Astec: The company is witnessing robust demand across its Infrastructure Solutions and Material Solutions businesses, as well as improved parts sales volume. ASTE’s shares have gained 8.5% in a year. ASTE is progressing well on its OneASTEC business model, with the strategic pillars of Simplify, Focus and Grow. This model has helped the company mitigate the current supply-chain challenges and logistic disruptions, thereby improving the overall operating performance. Astec continues to reduce organizational structure complexity, and consolidate and rationalize its footprint. Its focus on innovation, expanding globally through disciplined and strategic acquisitions, will aid its growth. The company has been committed to the improvement of its part sales volume and the digital platform over the long term.
Chattanooga, TN-based Astec manufactures and sells equipment and components for road building and related construction activities worldwide. The Zacks Consensus Estimate for the company’s 2023 earnings has been revised 30% upward in 60 days. The consensus estimate indicates year-over-year growth of 122%. ASTE sports a Zacks Rank #1 at present.
Price & Consensus: ASTE
Manitowoc: The company has been witnessing high customer demand, as evident from its higher order levels and backlog. Backed by this, its share price has increased 77% in the past year. The company’s innovation pipeline has been robust and its aftermarket business has been performing well. MTW remains focused on improving this crucial part of its business. The company is committed to cash preservation and balance sheet management, while funding critical programs for future growth. Given that the tower crane market in China is the largest in the world, Manitowoc is scaling up its China tower crane business. It is also expanding its tower crane rental fleet in Europe. These strategic initiatives, along with MTW’s pursuit of acquisition opportunities to accelerate product development programs in its all-terrain product line, will help drive long-term growth.
Milwaukee, WI-based Manitowoc provides engineered lifting solutions in the Americas, Europe, Africa, the Middle East and the Asia Pacific. The Zacks Consensus Estimate for this year’s earnings has increased 32% in the past 90 days. The consensus mark indicates year-over-year growth of 5.7%. The company has a trailing four-quarter earnings surprise of 256.3%, on average. MTW currently sports a Zacks Rank #1.
Price & Consensus: MTW
Caterpillar: The company’s revenues and earnings have been growing year over year for nine straight quarters, owing to its cost-saving actions, strong end-market demand and pricing actions. CAT’s backlog was a solid $30.4 billion at the end of the first quarter of 2023, which will support its top line in the upcoming quarters. Caterpillar is anticipated to gain from strength in residential construction and non-residential construction in the United States. The company has been investing in enhancing its digital capabilities, connecting assets and job sites, and developing the next generation of more productive and efficient products, which will continue to be a growth driver. It is funding initiatives that drive long-term growth focused on areas of expanded offerings and services, and digital initiatives like e-commerce, sustainability and electrification. The stock has gained 37% in a year, aided by these tailwinds.
Known for its iconic yellow machines, Caterpillar is the largest global construction and mining equipment manufacturer. The Zacks Consensus Estimate for CAT’s 2023 earnings indicates year-over-year growth of 28.3%. Earnings estimates have moved up 2.5% over the past 60 days. CAT has a trailing four-quarter earnings surprise of 14.3%, on average. CAT has an estimated long-term earnings growth rate of 12%. The company currently carries a Zacks Rank #3 (Hold).
Price & Consensus: CAT
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Caterpillar Inc. (CAT) : Free Stock Analysis Report
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Astec Industries, Inc. (ASTE) : Free Stock Analysis Report
Terex Corporation (TEX) : Free Stock Analysis Report
Komatsu Ltd. (KMTUY) : Free Stock Analysis Report
