Yahoo Finance 5 Metal Fabrication Stocks to Watch Amid Improving Industry Trends
The Zacks Metal Products - Procurement and Fabrication industry is poised to gain from demand in the end-use sectors, such as manufacturing, aerospace and automotive. The recent indications of easing supply-chain disruptions instill optimism.
Players like AB SKF SKFRY, The Timken Company TKR, ESAB Corporation ESAB, Kaiser Aluminum KALU and Northwest Pipe Company NWPX have witnessed order growth and delivered improved results despite the inflationary scenario and supply-chain woes. Solid end-market demand, efforts to gain market share and investment in automation should aid growth for these companies. Their focus on cost management and improving efficiency will boost margins.
About the Industry
The Zacks Metal Products - Procurement and Fabrication industry primarily comprises metal processing and fabrication service providers that transform metal into metal parts, machinery or components used across various other industries. Their processes include forging, stamping, bending, forming and machining, which are used to shape individual pieces of metal, and welding and assembling to join parts. The companies either use one of these processes or a combination of these. The most common raw materials utilized by metal fabrication companies include plate metal, formed or expanded metal, tube stock, welding wire or rod, and casting. The industry players serve an array of markets, including construction, mining, aerospace and defense, automotive, agriculture, oil and gas, electronics/electrical components, industrial equipment, and general consumer.
What's Shaping the Future of Metal Products - Procurement and Fabrication Industry
Easing Supply-Chain Snarls to Bring Relief: Per the Fed’s latest industrial production report, the aggregate production of fabricated metal products in the United States edged down 0.2% in April 2024, an improvement from the 0.7% dip reported in March 2024. Over the 12 months ended April 2024, the production of fabricated metal products was up a meager 0.1%. Overall, industrial production was down 0.4% over the same period. A similar pattern is evident in the Institute for Supply Management’s Manufacturing Index, which languished in the contraction territory for 16 consecutive months till February 2024. In March, the index saw a slight uptick to 50.3%, but this recovery was not sustained and the index fell back into contraction territory again in April with a 49.2% reading, followed by 48.7% in May. Orders have been impacted, reflecting lower customer spending amid inflationary trends. With the inflation metrics now showing clear signs of slowing down, orders will pick up. The industry was affected by supply-chain issues, although some improvement has been noted recently. Delivery performances of suppliers to manufacturing organizations have improved for the third consecutive month in May and are expected to accelerate through 2024. Once the situation normalizes, demand in the metal Products - Procurement and Fabrication industry’s diverse end markets will drive growth.
Pricing Actions to Combat High Costs: The industry has been experiencing significant inflation levels, including higher prices for labor, freight and fuel. The companies are witnessing labor shortages for some positions and incurring steep labor costs to meet demand. The industry players are focusing on pricing actions, cost-cutting measures, efforts to improve productivity and efficiency, and the diversification of supplier bases to mitigate some of these headwinds.
Automation & End-Market Growth to Act as a Catalyst: The industry’s customer-focused approach to providing cost-effective technical solutions and automation to increase efficiency and lower labor costs, as well as the development of the latest and innovative products, should drive growth in the days ahead. Growth in the end-use sectors, such as manufacturing, aerospace and automotive, is anticipated to benefit the metal fabrication market over the next few years. Developing countries hold promise due to rapid industrialization. This, in turn, is likely to create demand.
Zacks Industry Rank Indicates Bright Prospects
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates upbeat prospects in the near term. The Zacks Metal Products - Procurement and Fabrication industry, which is a 12-stock group within the broader Industrial Products Sector, currently carries a Zacks Industry Rank #19, which places it at the top 8% of 250 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Before we present a few stocks that you may want to consider for your portfolio, let us take a look at the industry’s recent stock-market performance and valuation picture.
Industry Versus Broader Sector
The Zacks Metal Products - Procurement and Fabrication industry has outperformed its sector and the Zacks S&P 500 composite over the past year.
Over this period, the industry has gained 16.7% compared with the sector’s growth of 17.0%. Meanwhile, the Zacks S&P 500 composite has risen 24.7%.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month EV/EBITDA ratio, which is a commonly used multiple for valuing Metal Products - Procurement and Fabrication companies, the industry is currently trading at 19.59 compared with the S&P 500’s 12.05 and the Industrial Products sector’s forward 12-month EV/EBITDA of 18.44. This is shown in the charts below.
Enterprise Value/EBITDA (EV/EBITDA) F12M Ratio
Enterprise Value/EBITDA (EV/EBITDA) F12M Ratio
Over the last five years, the industry traded as high as 24.60 and as low as 4.55, the median being at 9.83.
5 Metal Products - Procurement & Fabrication Stocks to Keep Tabs on
Kaiser Aluminum: The company witnessed a notable 48% year-over-year jump in adjusted EBITDA in 2023 and a 34% increase in the first quarter of 2024, aided by efforts to control costs and improve operating efficiencies. Backed by this performance, KALU shares have gained 55.6% over the past six months. Demand for aerospace and high-strength applications will be supported by customer commitments for commercial jets and heightened demand within the defense, space and business jet sectors. In packaging applications, shipments and conversion revenues are expected to improve as destocking ends in coated food products, along with anticipated steady demand improvements for both beverage and food products. Positioned favorably within diverse end markets and equipped with multi-year contracts with strategic partners, the company is poised for growth. Efforts to lower costs, streamline operations and enhance manufacturing efficiencies will help it bolster margins. The company intends to pursue strategic growth initiatives in its aerospace/high-strength and packaging applications.
The Zacks Consensus Estimate for Franklin, TN-based Kaiser Aluminium’s current-year earnings has moved 15% north over the past 60 days. Earnings estimates suggest year-over-year growth of 50.4%. The company has a trailing four-quarter earnings surprise of 136.8%. It currently sports a Zacks Rank #1 (Strong Buy).
You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: KALU
Northwest Pipe: The company has been implementing cost reductions and actions to enhance operating efficiency, which will support margins. Rising demand for developed water sources and the pressing need to upgrade, repair and replace the aging U.S water and wastewater systems present significant opportunities for NWPX. The Infrastructure Investment and Jobs Act allocating $55 billion for relevant water infrastructure projects through fiscal 2026 opens up vast possibilities. The company continues to strengthen its liquidity by repaying debt and generating strong cash flow from operations, supported by effective management of working capital. Its growth strategy remains focused on improving the Precast business to reduce the cyclicality of the Steel Pressure Pipe operations, and increasing overall margins and cash flow. The company also continues to look for opportunities for growth through expansion or acquisitions. The stock has gained 23% over the past six months.
The Zacks Consensus Estimate for Vancouver, WA-based Northwest Pipe’s current-year earnings has moved up 6.5% over the past 60 days. The estimate indicates growth of 17.7% from the year-earlier reported number. NWPX has a trailing four-quarter earnings surprise of 11.5%, on average, and flaunts a Zacks Rank of 1, currently.
Price and Consensus: NWPX
ESAB: The company recently entered a distribution agreement with INFRA Group to expand the availability of ESAB’s differentiated solutions by offering its welding and gas control equipment to customers in Mexico. ESAB inked a deal to acquire Linde Industries Private Limited, which is a market leader in welding consumables and equipment in Bangladesh. Earlier this year, ESAB completed the acquisition of Sager S.A. and announced an agreement to acquire SUMIG. These acquisitions are faster-growing, less cyclical and higher-margin businesses that will expand its light automation, equipment, and repair and maintenance portfolio in the Americas. The company recently reported record sales and margins for the first quarter of 2024. Its shares have gained 14.7% over the past six months. ESAB has been simplifying its product lines, and introducing innovative products, fueling growth and profitability. It continues to drive innovation, growth, margin expansion and higher cash flow using its ESAB Business Excellence system. The company expects continued improvement in its adjusted EBITDA and earnings per share in 2024.
The Zacks Consensus Estimate for North Bethesda, MD-based ESAB’s current-year earnings has moved 2.3% north over the past 60 days. The estimate indicates year-over-year growth of 10.5%. The company has a trailing four-quarter earnings surprise of 12.9%. ESAB currently has a long-term estimated earnings growth of 11.5%. It currently carries a Zacks Rank #2 (Buy).
Price and Consensus: ESAB
AB SKF: The company effectively countered cost inflation by adjusting pricing and improving manufacturing efficiency. It is progressing well in its strategy to simplify its portfolio. SKFRY continues to invest in technology and innovation. It has promising projects in the pipeline in several high-growth segments, such as Railway, Agriculture and Machine Tools. With magnetic bearings playing a central role in green industries, AB SKF is now focused on growing this business. The company concluded the strategic review of the Aerospace business. To leverage its full potential within this industry, SKFRY is intensifying its focus on core segments — Aeroengine bearings and Aerostructures — through accelerated investments, including digitalization, automation and modernization. It is also exploring strategic options to exit some non-core business lines in the Aerospace business. The company has gained 12% over the past six months.
The Zacks Consensus Estimate for earnings for 2024 for the Gothenburg, Sweden-based company has moved up 0.7% over the past 60 days. The company has a trailing four-quarter earnings surprise of 13.8%, on average. ABSKF has a long-term estimated earnings growth rate of 15.5% and currently carries a Zacks Rank #3 (Hold).
Price and Consensus: AB SKF
Timken: The company is experiencing strong demand for the broad range of products and services it offers to the food and beverage industry. It expects to see sales compound annual growth rate (CAGR) of 6-8% over the next five years. This will be aided by the solid portfolio of organic and inorganic food and beverage products that it has built through the years. Its diversity, in terms of end-market, customer and geography, product innovation, and engineering expertise, provides it with a competitive edge. Timken continues to pursue strategic acquisitions to broaden its portfolio and capabilities across diverse markets, focusing on bearings, adjacent power transmission products and related services. TKR’s efforts to grow its wind and solar businesses will be a key catalyst, considering the growing demand for renewable energy. Timken’s ongoing actions to enhance liquidity, reduce costs and generate strong cash flow are also commendable. The Timken stock has gained 12.8% over the past six months.
The Zacks Consensus Estimate for North Canton, OH-based Timken’s current-year earnings has moved up 3% over the past 60 days. TKR has a trailing four-quarter earnings surprise of 5.8%, on average. The stock has an estimated long-term earnings growth rate of 7.6% and a Zacks Rank #3.
Price and Consensus: TKR
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AB SKF (SKFRY) : Free Stock Analysis Report
Timken Company (The) (TKR) : Free Stock Analysis Report
Kaiser Aluminum Corporation (KALU) : Free Stock Analysis Report
Northwest Pipe Company (NWPX) : Free Stock Analysis Report
ESAB Corporation (ESAB) : Free Stock Analysis Report
