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Lincoln Electric Holdings, Inc. LECO looks promising at the moment, courtesy of improving order levels across all of its segments and focus on expanding in the automation solutions market. Innovative product launches and cost reduction actions are also contributing to the company’s performance.
The company currently has a Zacks Rank #3 (Hold) and a VGM Score of A. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) 2 (Buy) or 3, offer the best investment opportunities. You can see the complete list of today’s Zacks #1 Rank stocks here.
Factors Favoring the Stock
Earnings & Sales Beat Estimates in Q4: The company reported fourth-quarter adjusted earnings of $1.24 per share, surpassing the Zacks Consensus Estimate of $1.07. Total revenues of $694 million also beat the Zacks Consensus Estimate of $687 million.
Earnings Surprise History: The company has a trailing four-quarter earnings surprise of 47.6%, on average.
Positive Estimate Revision Activity: The Zacks Consensus Estimate for Lincoln Electric’s earnings estimates 2021 and 2022 have moved north by 5.2% and 4.8%, respectively, over the past 60 days.
Solid Growth Projections: The Zacks Consensus Estimate for the company’s 2021 earnings is current pegged at $5.08, suggesting year-over-year growth of 22.4%. The estimate for 2022 is at $5.89, indicating year-over-year improvement of 16%.
Upbeat Guidance: Lincoln Electric has been witnessing improving order rates across all segments, lately, as its end markets (General Industries and Transportation and Automotive) continue to recover. Management expects current-year organic sales growth in high-single digits and incremental margin to average within the mid-to-high 20% range for 2021.
Other Growth Drivers
The company is committed to new product development and utilizing digital platforms to engage customers. Lincoln Electric’s product launches in the automation solutions market are likely to aid growth. Focus on its new additive services business will position the company as a manufacturer of large-scale 3D-printed metal spell parts, prototypes and tooling for industrial customers, which is a major growth prospect.
Recently, Lincoln Electric acquired Zeman Bauelemente Produktionsgesellschaftm.b.H., a Zeman Group unit, in a bid to drive automation growth in structural steel applications. It will boost Lincoln Electric’s annual automation sales by around 10% and expand its international automation capabilities to support the company’s Higher Standard 2025 Strategy.
The company has been gaining from several acquisitions made over the past few years. Notably, in 2019, Lincoln Electric acquired the soldering business of Worthington Industries, Inc. WOR, which expanded the Harris Products Group’s portfolio of industry-leading consumables. The company’s Baker Industries buyout enabled it to expand automation and additive strategies. The company also acquired a controlling interest in Askaynak, which provided a boost to the company's regional growth strategy in Europe, the Middle East and Africa.
Lincoln Electric is also focused on its cost-reduction actions to sustain margins. After yielding cost-saving benefits of $88 million in 2020, the company anticipates incremental cost savings between $25 million and $30 million in the current year. It is also implementing pricing actions to mitigate raw material and freight inflation. Further, the company’s effort to reduce the debt level is encouraging. The company’s debt to invested capital was at 47.6% at the end of 2020. At the end of 2020, Lincoln Electric had a liquidity of $737 million. Its strong cash position and liquidity will drive growth. it expects strong cash flow generation and cash conversion in excess of 90% in 2021.
Lincoln Electric’s shares have gained 55.7% over the past year compared with the industry’s growth of 29.6%.
Stocks to Consider
Some better-ranked stocks in the Industrial Products sector are Deere & Company DE and AGCO Corporation AGCO. While Deere sports a Zacks Rank #1, AGCO carries a Zacks Rank #2 at present.
Deere has a projected earnings growth rate of 82.5% for fiscal 2021. Over the past year, the company’s shares have soared 155%.
AGCO has an estimated earnings growth rate of 29.9% for the ongoing year. The company’s shares have surged a whopping 182% in the past year.
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Lincoln Electric Holdings, Inc. (LECO) : Free Stock Analysis Report
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