Here's Why Lincoln Electric (LECO) Stock is an Attractive Bet
Lincoln Electric Holdings, Inc. LECO looks promising at the moment, aided by forecast topping fourth-quarter 2020 results and focus on expanding in the automation solutions market. Moreover, innovative product launches and cost reduction actions are bolstering the company’s performance. We are positive about the company’s prospects and believe this is the right time to add the stock to your portfolio as it is poised to carry on with the bullish momentum.
The company currently carries a Zacks Rank #2 (Buy) and has a VGM Score of B. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2, offer the best investment opportunities. You can see the complete list of today’s Zacks #1 Rank stocks here.
Let's delve deeper into the factors that make the Lincoln Electric stock a compelling investment option at the moment.
Earnings & Sales Top Estimates in Q4
The company reported fourth-quarter adjusted earnings of $1.24 per share, surpassing the Zacks Consensus Estimate of $1.07. The bottom line also improved 8% year over year. Total revenues of $694 million also beat the Zacks Consensus Estimate of $687 million but declined 5.8% year over year.
Earnings Surprise History
The company has a trailing four-quarter average earnings surprise of 47.6%. It has a long-term earnings growth rate of 10%.
Upbeat Guidance
Lincoln Electric has witnessed improving order rates across all segments, lately, as its end markets (General Industries and Transportation and Automotive) continue to recover. Management projects first-quarter organic sales to be flat to modestly higher compared with the prior-year levels. It expects current-year organic sales growth in high-single digits, driven by the current demand scenario. Considering this, Lincoln Electric anticipates incremental margin to average within the mid-to-high 20% range for 2021.
Positive Estimate Revision Activity
The Zacks Consensus Estimate for the company’s current-year earnings per share moved 7.6% north over the past 60 days and is currently pegged at $5.09. This consensus mark also suggests year-over-year growth of 22.6%.
Other Growth Drivers
The company is focused on 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.
Lincoln Electric has been benefiting from several acquisitions made over the past few years. It acquired Inovatech Engineering Corporation and Coldwater Machine Company, Pro Systems LLC in 2018, which in turn bolstered its automated cutting solutions and application expertise. In 2019, Lincoln Electric acquired the soldering business of Worthington Industries WOR, which broadened 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 — a leading Turkish producer of welding consumables and equipment. The buyout further boosts the company's regional growth strategy in Europe, the Middle East and Africa.
Lincoln Electric is focused on its cost-reduction actions to sustain margins. After yielding cost-saving benefits of $88 million in 2020, the company expects 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.
The company’s effort to reduce the debt level is encouraging. Total debt as of Dec 31, 2020, was $718 million compared with $747 million at 2019-end. 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. In fact, its strong cash position and liquidity will drive growth. Lincoln Electric expects strong cash flow generation and cash conversion in excess of 90% in 2021.
Price Performance
Lincoln Electric’s shares have gained 18.2% over the past year compared to the industry’s growth of 34.9%.
Stocks to Consider
Some better-ranked stocks in the Industrial Products sector are Deere & Company DE and Dover Corporation DOV. While Deere flaunts a Zacks Rank of 1, Dover carries a Zacks Rank #2, at present.
Deere & Company has a projected earnings growth rate of 82.5% for fiscal 2021. Over the past year, the company’s shares have appreciated 133.2%.
Dover has an expected earnings growth rate of 13.7% for 2021. The stock has gained 38.7% in a year’s time.
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