Soaring industrial activities worldwide have increased the requirement for industrial equipment and machinery, on the backs of which the industrial sector is anticipated to maintain its upward trajectory.
Given this backdrop, let us explore some industrial stocks Hitachi, Ltd. (HTHIY), Standex International Corporation (SXI), and The L.S. Starrett Company (SCX). Before we dig deeper into the fundamentals of the stocks mentioned above, let us discuss the industrial sector briefly.
The Russia-Ukraine war-induced constrained supply chain and high commodity prices, and the Fed’s incessant rate hikes to fight inflation have drastically affected the industrial sector. However, on the backs of improved economic activities, the sector has been showing signs of recovery and resilience.
As per recently released data, total industrial production in the United States in May 2023 grew 0.2% year-over-year. As per Statista, U.S. manufacturing is expected to grow at a CAGR of 3% between 2023 and 2028, whereas global manufacturing is expected to grow at a CAGR of 3.6% over the same period.
In addition, there has been rapid industrialization in Asia-Pacific countries such as China, India, Japan, and South Korea, which could drive the market demand for advanced industrial machinery, keeping the overall industrial sector buoyed.
Moreover, the increased adoption of advanced technologies like the Internet of Things (IoT), Artificial Intelligence (AI), and robotics by manufacturers could enhance the efficiency and productivity of the machinery.
The industrial machinery market is expected to grow to $708.3 billion in 2027 at a CAGR of 6.7%. Furthermore, over the past year, the Industrial Select Sector SPDR Fund (XLI) has gained 23.2%, outpacing the S&P 500, which gained 20.4%. This substantiates investors’ interest in industrial stocks.
Given the sector’s bright growth prospects, fundamentally strong industrial stocks HTHIY, SXI, and SCX could be solid buys now.
Hitachi, Ltd. (HTHIY)
Headquartered in Tokyo, Japan, HTHIY offers information technology, mobility, industry, and smart life solutions. The company provides information and telecom services, including IoT, servers, software, ATMs, and scanners for communication, finance, manufacturing, and energy industries.
On June 15, Hitachi Energy, HTHIY’s subsidiary, announced the order won from Electricity Interconnection France-Spain (Inelfe), the joint venture bringing together operators of the Spanish (Red Eléctrica) and French (RTE) electricity transmission networks.
The order is to supply four high-voltage direct current (HVDC) converter stations to interconnect France and Spain via a subsea cable across the Biscay Gulf. This should bode well for HTHIY.
On June 13, Hitachi Vantara, HTHIY’s subsidiary, announced two new global partnership agreements with Cisco Systems, Inc. (CSCO). The agreements bring Hitachi Vantara into CSCO's Service Provider and Solution Technology Integrator (STI) partner programs.
This should enable Hitachi Vantara to seamlessly integrate Cisco technologies with its storage products and position the company as a leading data center infrastructure and hybrid cloud-managed services provider.
In May, HTHIY announced the dividend of ¥75 per share for the fiscal year that ended March 31, 2023, paid to the shareholders from June 2, 2023, onwards. This reflects its cash generation abilities.
HTHIY’s trailing-12-month levered FCF margin of 9.38% is 79.9% higher than the industry average of 5.21%. Its trailing-12-month cash from operations of $6.23 billion is significantly higher than the industry average of $214.60 million.
HTHIY’s revenues increased 6% year-over-year to ¥10.88 trillion ($78.10 billion) for the year that ended March 31, 2023. The company’s adjusted operating income grew 1.3% from the previous year to ¥748.14 billion ($5.37 billion). Its total adjusted EBITA came in at ¥884.61 billion ($6.35 billion), up 3.4% year-over-year.
Also, the company’s net income increased 4.9% year-over-year to ¥703.87 billion ($5.05 billion), while the earnings per share attributable to HTHIY stockholders came in at ¥683.89, up 13.4% from the prior year.
The consensus revenue estimate of $64.63 billion for the fiscal year ending March 2024 reflects a 430.5% year-over-year improvement. Its EPS for the same period is expected to come in at $8.06. It surpassed revenue estimates in each of the trailing four quarters, which is impressive.
Over the past six months, the stock has gained 21.8% and 22.6% over the past three months to close the last trading session at $125.62.
HTHIY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
HTHIY has an A grade for Value and Momentum and a B for Stability and Quality. Within the B-rated Industrial – Equipment industry, it is ranked #4 of 91 stocks.
In addition to the POWR Ratings highlighted above, one can see HTHIY’s ratings for Growth and Sentiment here.
Standex International Corporation (SXI)
SXI, along with its subsidiaries, manufactures and distributes a variety of commercial and industrial products and services. The company operates through five segments: Electronics; Engraving; Scientific; Engineering Technologies; and Specialty Solutions.
During the fiscal third quarter, the company repurchased approximately 42,500 shares for $5 million. There was $72.1 million remaining on the company's current share repurchase authorization at the end of the fiscal third quarter of 2023.
On April 27, the company declared a quarterly dividend of $0.28 per share, indicating an approximately 7.7% year-over-year increase, paid to the shareholders on May 25. Its annual dividend of $1.12 translates to a dividend yield of 0.81% on current prices.
The company’s dividend payouts have grown at a CAGR of 8.6% over the past three years and 9.5% over the past five years.
SXI’s trailing-12-month levered FCF margin of 8.16% is 56.6% higher than the industry average of 5.21%. Its trailing-12-month net income margin of 17.91% is 182.2% higher than the industry average of 6.35%.
During the fiscal third quarter that ended March 31, 2023, SXI’s net sales stood at $184.33 million. Its gross profit and income from operations grew 3.7% and 261.7% from the year-ago values to $70.90 million and $88.52 million, respectively.
Its adjusted net income from continuing operations surged 5.2% year-over-year to $19.63 million, while SXI’s adjusted earnings per share from continuing operations increased 7.1% from the year-ago value to $1.65. Moreover, its adjusted EBITDA grew 4.7% year-over-year to $34.51 million.
Analysts expect SXI’s revenue and EPS to increase 0.1% and 10% year-over-year to $184.96 million and $1.69, respectively, for the fiscal fourth quarter ending June 2023. It surpassed EPS estimates in each of the trailing four quarters and revenue estimates in three of the four trailing quarters.
Over the past six months, the stock has gained 41.2% to close the last trading session at $137.47. It has gained 20.4% over the past three months.
It’s no surprise SXI has an overall grade of A, which equates to a Strong Buy in our POWR Ratings system.
The stock also has an A grade for Momentum and a B for Sentiment and Quality. Within the same industry, it is ranked #6.
In addition to what has been mentioned above, to see other POWR Ratings for SXI (Growth, Value, and Stability), click here.
The L.S. Starrett Company (SCX)
SCX manufactures and sells industrial, professional, and consumer measuring and cutting tools and related products in the United States, Canada, Mexico, Brazil, China, the United Kingdom, Australia, and New Zealand.
SCX’s trailing-12-month levered FCF margin of 9.35% is 79.5% higher than the industry average of 5.21%. Its trailing-12-month ROCE, ROTC, and ROTA of 16.40%, 9.90%, and 9.02% are 17.6%, 42%, and 78% higher than the industry averages of 13.94%, 6.97%, and 5.07%, respectively.
SCX’s revenue has grown at 5.6% and 4% CAGRs over the past three and five years, respectively. Moreover, its EBIT and net income have grown at 44.3% and 61.8% CAGRs over the past three years, respectively.
For the fiscal third quarter that ended March 31, 2023, SCX’s net sales increased by 2% year-over-year to $61.68 million. During the same quarter, the company’s gross profit stood at $19.22 million, while its operating income came in at $4.11 million.
Moreover, SCX’s net income and earnings per share for the quarter increased by 74.4% and 73.7% year-over-year to $7.47 million and $0.99, respectively. Its total current liabilities as of March 31, 2023, stood at $37.65 million, compared to $41.18 million as of June 30, 2022.
SCX’s stock has gained 30.4% over the past six months and 42.5% over the past year to close the last trading session at $10.26.
SCX’s promising prospects are reflected in its POWR Ratings. It has an overall A rating, which translates to a Strong Buy in our proprietary rating system.
The stock has an A grade for Value and Momentum and a B for Sentiment and Quality. It is ranked #5 within the same industry.
Click here for additional POWR Ratings for Growth and Stability for SCX.
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HTHIY shares were trading at $125.62 per share on Monday morning, down $1.64 (-1.29%). Year-to-date, HTHIY has gained 25.31%, versus a 15.35% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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