Supply chain reshoring has become a significant theme in global industrial markets due to rising geopolitical tensions and supply chain disruptions. Businesses are shifting production back to their home countries, benefitting companies that support domestic manufacturing and logistics.
Given this positive outlook, it might be considered wise for investors to add three fundamentally strong industrial stocks, Tennant Company (TNC), Donaldson Company, Inc. (DCI), and The Gorman-Rupp Company (GRC), for substantial gain.
With Trump’s administration, this year is set to bring regulations, technology, and labor changes. Many manufacturers are expecting more growth and investment without the regulatory burden under Trump’s office.
President Trump is expected to levy tariffs against top trading partners like Canada, Mexico, and China, complicating the supply chain. However, this could also mean increased demand for manufacturing companies with strong domestic production. Companies with strong localized supply chains stand to benefit from these policies.
Since labor costs are often higher in domestic markets compared to overseas production hubs, manufacturers are investing in automation and robotics to enhance efficiency. Further, the global industrial services market is anticipated to reach $59.1 billion by 2028, growing at a CAGR of 8.6%.
To that end, let’s evaluate the fundamental aspects of the three Industrial - Machinery stocks mentioned above, starting with the third choice.
Stock #3: Tennant Company (TNC)
TNC designs, manufactures, and markets floor-cleaning equipment worldwide. Its offerings include floor maintenance equipment, sustainable cleaning technologies, aftermarket parts, and repair services. The company’s products are available under various brands like Tennant, Nobles, Alfa Uma Empresa Tennant, IPC, Gaomei, and Rongen.
On December 10, 2024, TNC announced the release of lithium-ion battery-powered versions of its T12 and T16 scrubbers. This innovation comes with significant added benefits, including extended battery lifespan, reduced maintenance, and enhanced operator safety, that could help with the company’s mission to create a cleaner, safer, and healthier world.
In terms of the trailing-12-month gross profit margin, TNC’s 42.98% is 35.8% higher than the 31.65% industry average. Similarly, its 8.89% trailing-12-month ROTA is 67.1% higher than the industry average of 5.32%. Also, its trailing-12-month ROTC of 9.92% compares to the industry average of 6.86%.
In the fiscal third quarter that ended on September 30, 2024, TNC’s net sales increased 3.6% year-over-year to $315.8 million. Its gross profit grew marginally from the year-ago value to $133.8 million. The company reported adjusted EBITDA of $47.9 million, indicating a 4.4% growth from the prior-year quarter. In addition, its adjusted net income came in at $26.6 million and $1.39, up 4.7% and 3.7% year-over-year, respectively.
According to the 2024 updated guidance, the company expects net sales to range from $1.28 billion to $1.35 billion, with adjusted EBITDA between $205 million and $215 million. The adjusted EBITDA margin is expected to range from 16% to 16.5%.
Analysts expect TNC’s revenue for the current year (ended December 2024) to grow 3% to $1.28 billion and its EPS to be $6.42. For the fiscal year 2025, its revenue is expected to grow by 3.6% from the prior year to $1.33 billion and its EPS to be $6.26, respectively.
The stock has gained 5.3% over the past month to close the last trading session at $85.58.
TNC’s POWR Ratings reflect this robust outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
TNC has a B grade for Value, Momentum, and Quality. It is ranked #14 out of 78 stocks in the A-rated Industrial - Machinery industry. Click here to see the additional ratings for TNC (Growth, Stability, and Sentiment).
Stock #2: Donaldson Company, Inc. (DCI)
DCI manufactures and sells filtration systems and replacement parts for diverse industries and advanced markets worldwide. The company operates through three segments: Mobile Solutions; Industrial Solutions; and Life Sciences.
On January 30, DCI announced its partnership with Daimler Truck North America (DTNA) for the Freightliner SuperTruck III project, which is a contribution to the hydrogen fuel cell project. In this collaboration, DCI’s advanced air filter technology will be featured in the next-gen Freightliner SuperTruck III, which aims to enhance fuel efficiency and reduce emissions.
The stock’s trailing-12-month net income margin of 11.56% is 76.1% higher than the industry average of 6.57%. Similarly, its 16.73% trailing-12-month ROTC is 144% above the industry average of 6.86%. Also, its trailing-12-month asset turnover ratio of 1.25x compares favorably to the industry average of 0.78x.
DCI’s net sales for the fiscal first quarter that ended October 31, 2024, increased 6.4% year-over-year to $900.1 million, while its adjusted gross profit grew 6.6% from the year-ago value to $320.7 million.
The company’s adjusted EBITDA rose 7.9% from the prior-year quarter to $164.8 million. Moreover, its adjusted net earnings came in at $101.5 million, indicating a 10.2% growth from the prior-year quarter period, and its adjusted EPS was $0.83 per share, up 10.7% year-over-year.
For the full year, the company expects EPS to be between $3.56 and $3.72. This compares to fiscal 2024 GAAP EPS of $3.38 and adjusted EPS of $3.42. Sales are anticipated to grow 2% to 6% year-over-year, with 1% pricing benefit.
The consensus revenue estimate of $908.32 million for the fiscal second quarter (ended January 2025) represents a 3.6% increase year-over-year. The consensus EPS estimate of $0.85 for the same quarter indicates a 4.6% improvement year-over-year. The company has an excellent earnings surprise history; it surpassed the consensus EPS estimates in each of the trailing four quarters.
DCI shares have surged 6.6% over the past year to close the last trading session at $70.68.
DCI’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.
DCI has a B grade for Momentum, Stability, and Quality. It is ranked #4 out of 78 stocks in the same A-rated industry. Click here to access the other DCI ratings for Growth, Value, and Sentiment.
Stock #1: The Gorman-Rupp Company (GRC)
GRC designs, manufactures, and sells pumps and pump systems internationally. The company's products include self-priming centrifugal, standard centrifugal, magnetic drive centrifugal, axial and mixed flow, vertical turbine line shaft, submersible, high-pressure booster, rotary gear, diaphragm, bellows, and oscillating pumps.
GRC's trailing-12-month EBIT margin of 13.55% is 31.5% higher than the industry average of 10.30%. Likewise, its trailing-12-month levered FCF margin of 10.45% is 51.5% above the industry average of 6.90%.
During the fiscal year 2024 that ended on December 31, 2024, GRC’s net sales increased marginally year-over-year to $659.67 million. The company’s gross profit came in at $204.33 million, reflecting an increase of 4.1% from the prior year's period. Moreover, its non-GAAP adjusted earnings came in at $46.03 million and $1.75 per share, up 28.5% and 27.7% year-over-year, respectively.
Street expects GRC’s revenue for the fiscal first quarter (ending March 2024) to increase 3.5% year-over-year to $164.84 million. Moreover, its EPS estimate of $0.45 for the same period indicates a 50% year-over-year growth.
Over the past nine months, the stock has surged 15.3%, closing the last trading session at $37.80.
GRC’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
It also has an A grade for Sentiment and a B for Value, Momentum, and Stability. Within the same Industrial - Machinery industry, it is ranked third. Click here to see GRC’s ratings for Growth and Quality.
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DCI shares closed at $70.13 on Friday, down $-0.55 (-0.78%). Year-to-date, DCI has gained 4.13%, versus a 2.51% rise in the benchmark S&P 500 index during the same period.
About the Author: ShreyaRathi
