The industrial sector is a critical component of the global economy, and investors are always looking for opportunities to capitalize on its growth. In this article, we look closely at three fundamentally sound industrial stocks: nVent Electric plc (NVT), Vontier Corporation (VNT), and Espey Mfg. & Electronics Corp. (ESP) to help determine whether they are worth investing in.
The industrial sector has been recovering from the pandemic-induced slowdown, but the Fed’s aggressive rate hikes have raised concerns about its growth prospects. Higher interest rates have weighed heavily on the production at U.S. factories, as manufacturing output rose only 0.1% last month.
However, despite still-elevated inflation and strong headwinds of a recession, the sector has exhibited remarkable resilience, as evident from the Industrial Select Sector SPDR® Fund ETF (XLI) 22.9% returns over the past six months and 7.4% year-to-date.
Moreover, driven by the ‘electrification of everything’ trend, the global electrical equipment market is projected to reach $3.39 trillion by 2029, growing at a CAGR of 11.1%. The increasing demand for electricity, the focus on energy efficiency, and the adoption of smart grid technologies across industries are also propelling demand for more advanced and efficient electrical equipment.
Also, the global industrial machinery market grew from $506.67 billion in 2022 to $545.67 billion in 2023, exhibiting a CAGR of 7.7%. Further, the market is expected to reach $708.30 billion by 2027, expanding at a CAGR of 6.7%.
Given this backdrop, we believe that the industrial sector is well-positioned to weather the impact of higher rates. Let’s look at the featured stocks in detail.
nVent Electric plc (NVT)
NVT is a global provider of electrical connection and protection solutions. The company operates through three segments: Enclosures; Electrical & Fastening Solutions; and Thermal Management.
On May 31, the company was recognized as a Top 10 Data Solutions Provider by CIO Applications magazine. This reflects NVT’s outstanding offerings to the data center industry by delivering reliable, scalable and innovative cooling, physical security, and power distribution solutions.
On May 18, NVT acquired ECM Investors, LLC, a leading provider of high-value electrical connectors, tools and test instruments, and cable management, for a consideration of $1.1 billion.
This acquisition complements NVT’s electrical power connection and grounding solutions portfolio while positioning the company with the electrification of everything in high-growth verticals, such as commercial solutions, power utilities, data solutions, and renewables.
NVT’s net sales increased 6.6% year-over-year to $740.60 million in the first quarter (ended March 31, 2023). Its operating income rose 37.7% from the year-ago value to $303.20 million. The company’s adjusted net income grew 34.1% from the prior-year quarter to $113.30 million, while its non-GAAP EPS came in at $0.67, representing a 34% improvement year-over-year.
During the same period, its total current assets of $1.25 billion increased 1.8% compared to $1.23 billion for the period that ended December 31, 2022.
Street expects NVT’s EPS and revenue for the second quarter (ending June 30, 2023) to increase 18.8% and 11.7% year-over-year to $0.69 and $812.31 million, respectively. Moreover, it surpassed the EPS estimates in three of the trailing four quarters.
Its EBITDA and net income have increased at CAGRs of 14.6% and 32.1% over the past three years, respectively. Also, its EPS has improved at a CAGR of 32.9% over the same period.
NVT’s shares have gained 53.9% over the past year to close the last trading session at $47.64.
NVT’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, 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.
It has a B grade for Stability, Sentiment, and Quality. Among the 91 stocks in the B-rated Industrial - Equipment industry, it is ranked #12. To see additional POWR Ratings of NVT for Growth, Value, and Momentum, click here.
Vontier Corporation (VNT)
VNT is a global industrial technology company engaged in mobility and multi-energy technologies and solutions to connect, manage and scale the mobility ecosystem globally. It operates through two segments: Mobility Technologies; and Diagnostics and Repair Technologies.
On June 8, VNT announced that its Retail Solutions business was selected by Shell to deploy its iNFX™ payment solution and microservices platform across their U.S. network of over 13,000 locations by the end of 2024. This platform is expected to significantly improve operational efficiency and enable rapid new feature launches, creating sustainable value for its customers.
On May 2, the company received Science Based Targets initiative (SBTi) validation for its near-term Green-House Gas (GHG) emissions reduction targets, including its newly announced scope 3 goal. VNT’s SBTi-approved targets include the reduction of absolute scope 1 and 2 GHG emissions and scope 3 GHG emissions to 45% and 25%, respectively, by 2030 from a 2020 base year.
VNT’s President and CEO, Mark Morelli, commented, "As we transform our portfolio to lead the energy transition across the mobility sector, Vontier is proud to join a growing list of SBTi-validated companies that are taking climate action. We continue to drive operational excellence to reduce emissions and innovate for a more sustainable mobility ecosystem.”
For the first quarter that ended March 31, 2023, VNT’s sales increased 3.8% year-over-year to $776.40 million. Its gross profit rose 5.3% from the year-ago value to $353 million. During the same period, its non-GAAP net earnings amounted to $106.10 million and $0.68 per share. Also, its adjusted free cash flow improved 95.2% from the year-ago value to $77.90 million.
Analysts expect VNT’s revenue and EPS for the current quarter (ending June 30, 2023) to amount to $746.39 million and $0.65, respectively. EPS and revenue are projected to increase by 10.1% and 2.3% year-over-year to reach $3.13 and $3.16 billion, respectively, in the fiscal year 2024. Additionally, it surpassed the EPS estimates in each of the trailing four quarters, which is excellent.
Its revenue and EBITDA have grown at CAGRs of 5.7% and 3.8% over the past three years, respectively. Likewise, its total assets have improved at a CAGR of 15.4% in the same period.
Over the past six months, the stock has gained 69.2% to close the last trading session at $31.53.
VNT’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It has an A grade for Momentum and a B for Value, Sentiment, and Quality. Within the same B-rated industry, it is ranked #10. Click here to see VNT’s rating for Growth and Stability.
Espey Mfg. & Electronics Corp. (ESP)
ESP is a power electronics design and original equipment manufacturing company engaged in developing and delivering products for use in military and industrial applications across the United States. Its products include power supplies, power converters, filters, power transformers, magnetic components, and power radar systems.
During the third quarter (ended March 31, 2023), ESP’s net sales increased 13.8% year-over-year to $9.81 million, while its gross profit rose 13.7% from the year-ago value to $1.97 million.
The company’s operating and net incomes amounted to $958.69 thousand and $867.29 thousand, representing increases of 23% and 31.1% from the prior-year quarter, respectively. Also, its net income per share stood at $0.35, up 29.6% year-over-year.
ESP’s EBITDA and net income have increased at CAGRs of 25.9% and 31.4% over the past three years, respectively, while its EPS has grown at a CAGR of 30.1% over the same period.
The stock has gained 31.5% over the past six months to close the last trading session at $17.65.
It’s no surprise that ESP has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. It has a B grade for Value, Sentiment, and Quality. Out of 91 stocks in the same industry, it is ranked #9.
In addition to the POWR Ratings we’ve stated above, we also have ESP’s ratings for Growth, Momentum, and Stability. Get all ESP ratings here.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
NVT shares were trading at $47.64 per share on Monday afternoon, down $0.66 (-1.37%). Year-to-date, NVT has gained 24.90%, versus a 15.35% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
The post Should You Buy These 3 Industrial Stocks? appeared first on StockNews.com