Graco Inc. GGG is gaining from strength in the Industrial and Process segments, and investments in product innovation, despite increasing costs and forex woes. The company is also facing weakness in the Contractor segment due to lower demand in the home center channel, slowing construction markets in China and softer demand in the North America pro paint channel.
Key Factors Driving GGG
Business Strength: Graco’s Industrial segment is benefiting from robust activity in the alternative energy, electronics and battery end markets. Increasing orders in the liquid finishing and sealant and adhesive businesses also bode well. GGG expects the segment to benefit from increasing backlogs in powder equipment and systems in the second half of 2023. The Process segment is gaining from continued sales growth in vehicle service, automatic lubrication and semiconductor.
Strong price realization, along with favorable product and channel mix, are aiding Graco’s margin performance. The company’s gross margin increased 300 basis points in the first six months of 2023.
Investments in Product Innovation: Investments in capacity expansion and product innovation should drive Graco’s growth. In 2023, the company anticipates capital expenditures to be approximately $200 million, including $130 million for facility expansion projects at its Minnesota, South Dakota, Switzerland and Romania facilities. As for innovation, the company introduced hot melt adhesive dispense system, the InvisiPac HM10 and electric-powered airless gun and Ultra QuickShotearlier in 2023.
Rewards to Shareholders: The company continues to increase shareholders’ value through dividend payments and share buybacks. In the first six months of 2023, Graco paid out dividends worth $79 million to its shareholders, up 10.7% year over year. It repurchased common stocks worth $7.8 million in the same period. In December 2022, the company hiked its quarterly dividend by 11.9% to 23.5 cents per share.
In light of the above-mentioned positives, we believe, investors should retain GGG stock for now, as suggested by its current Zacks Rank #3 (Hold).
Graco Inc. Price and Consensus
Graco Inc. price-consensus-chart | Graco Inc. Quote
Stocks to Consider
Some better-ranked companies from the Industrial Products sector are discussed below:
Caterpillar Inc. CAT presently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
CAT’s earnings surprise in the last four quarters was 17.8%, on average. In the past 60 days, estimates for Caterpillar’s earnings have increased 10.6% for 2023. The stock has gained 54.3% in the past year.
Ingersoll Rand Inc. IR presently sports a Zacks Rank of 1. IR’s earnings surprise in the last four quarters was 14.9%, on average.
In the past 60 days, estimates for Ingersoll Rand’s earnings have increased 3% for 2023. The stock has gained 37% in the past year.
Eaton Corporation plc ETN currently carries a Zacks Rank #2 (Buy). The company delivered a trailing four-quarter earnings surprise of approximately 3%, on average.
In the past 60 days, estimates for Eaton’s earnings have increased 4% for 2023. The stock has soared 56.3% in the past year.
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