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Shares of Lincoln Electric Holdings, Inc. LECO scaled a fresh 52-week high of $126.82 during the trading session on Mar 15, before retracting a bit to close at $126.64. The company’s forecast-topping fourth-quarter 2020 results and focus on expanding in the automation solutions market have contributed to this rally.
Lincoln Electric’s shares have gained 73.2% in the past year, outperforming the industry’s growth of 65.5%.
Q4 Earnings Top Estimates
The company reported fourth-quarter adjusted earnings of $1.24 per share, surpassing the Zacks Consensus Estimate of $1.07. The company has a trailing four-quarter average earnings surprise of 47.6%. It has a long-term earnings growth rate of 10%.
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 high 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.
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. Lincoln Electric 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 appears 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 the year, Lincoln Electric had liquidity of $737 million. In fact, its strong cash position and liquidity are likely to drive growth. The company expects strong cash flow generation and cash conversion in excess of 90% in 2021.
Positive Estimate Revisions
The Zacks Consensus Estimate for the company’s current-year earnings per share moved 7.2% north over the past 60 days and is currently pegged at $5.07. This consensus mark also suggests year-over-year growth of 22.2%.
Zacks Rank & Other Stocks to Consider
Lincoln Electric currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some other top-ranked stocks in the Industrial Products sector are Deere & Company DE and Dover Corporation DOV, both carrying a Zacks Rank #2.
Deere 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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Worthington Industries, Inc. (WOR) : Free Stock Analysis Report
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