Lincoln Electric Holdings, Inc. LECO is likely to gain from acquisitions, product launches, execution of the 2020 vision and strategy. However, raw material inflation, ongoing volume compression in International Welding segment and weakness in the automotive sector remain near-term headwinds.
The company has outpaced the Zacks Consensus Estimate in two of the trailing four quarters, with an average positive earnings surprise of 0.27%.
Lincoln Electric has a market capitalization of approximately $5.34 billion.
The company currently carries a Zacks Rank #3 (Hold) and a VGM Score of B. Here V stands for Value, G for Growth and M for Momentum. The company's score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. In fact, 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 make solid investment choices.
Let’s delve deeper and analyze the company's potential growth drivers and possible headwinds.
Factors Favoring Lincoln Electric
Positive Growth Projections: The Zacks Consensus Estimate for fiscal 2019 is currently pegged at $5.04, indicating an improvement of 4.56% from the year-ago quarter. The estimate for fiscal 2020 is pegged at $5.57, suggesting growth of 10.57% from 2019 levels.
The company has an estimated long-term earnings growth rate of 11.25%, higher than the industry’s 9.7%.
Price Performance: The stock has gained 8.5% over the past three months, against the the industry’s decline of 0.5%.
Return on Assets (ROA): Lincoln Electric has a ROA of 13.4%, while the industry's ROA is 6.5%. An above-average ROA denotes that the company is generating earnings by effectively managing assets.
Return on Equity (ROE): The company’s trailing 12-month ROE of 36.2% reinforces its growth potential. The company's ROE is much higher than the industry’s 18.0%, highlighting the company's tactical efficiency in utilizing shareholders' funds.
Growth Drivers in Place: Lincoln Electric’s focus on innovative products and cost-cutting initiatives is likely to drive growth. Further, the company’s product launches in the automation solutions market are likely to aid growth. Lincoln Electric is also preparing for the launch of its new additive services business, which will position the company as a manufacturer of large scale 3D-printed metal spell parts, prototypes and tooling for industrial customers. This is likely to enhance the company’s prospects. It also continues to invest in automation, in sync with its strategy initiatives.
Lincoln Electric is benefiting from several acquisitions. In December last year, the company acquired Inovatech Engineering Corporation and its related assets, and Coldwater Machine Company, Pro Systems LLC and its related assets. The buyouts boosted Lincoln Electric’s automated cutting solutions and application expertise for structural steel applications and joining solutions. In January 2019, Lincoln Electric acquired the soldering business of Worthington Industries Inc. WOR. These buyouts will enhance the company’s product portfolio, accelerate growth in the retail channel and aid its Harris business.
In April, Lincoln Electric has completed the acquisition of Baker Industries and its related assets for $108 million to expand automation and additive strategies. These buyouts are anticipated to contribute $40-$50 million revenues through the balance of the year. Recently, Lincoln Electric acquired an additional 49.6% interest in Askaynak, a leading Turkish producer of welding consumables and equipment. The company currently holds a 50% stake in Askaynak, which it had secured in 1998. These acquisitions will drive the company.
Headwinds to Counter
Automation remains challenged due to the weak automotive and heavy industry capital spending. Lincoln Electric expects sales growth to be impacted in current year due to the ongoing volume compression in International Welding segment owing to the ongoing Air Liquide integration. Additionally, weak automotive end market will dent the company’s top line. Raw material inflation will remain a headwind in 2019.
Investors might want to hold on to the stock, at present, as it has ample prospects of outperforming peers in the near future.
Stocks to Consider
Some better-ranked stocks in the Industrial Products sector are Albany International Corporation AIN and Sealed Air Corporation SEE. Both of the stocks sport a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Albany International has an estimated earnings growth rate of 33.85% for 2019. The company’s shares have rallied 40.1% year to date.
Sealed Air has a projected earnings growth rate of 11.2% for the current year. The stock has gained 18.4% so far this year.
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