Driven by increasing demand for industrial machinery and services across several end-use industries, growth adoption of advanced technologies, and supportive government policies and investments, the industrial sector’s prospects appear robust.
Given the industry’s tailwinds, it could be wise to invest in fundamentally sound industrial stocks Standex International Corporation (SXI), Limbach Holdings, Inc. (LMB), and Karat Packaging Inc. (KRT) for solid returns.
Despite lingering macro headwinds, the industrial sector is well-positioned to witness robust profitability due to growing demand for industrial services across multiple end-use industries, including automotive, oil and gas, semiconductor and electronics, healthcare, metals and mining, aerospace, chemicals, power, and others.
According to a report by The Business Research Company, the global industrial services market is expected to reach $40.75 billion in 2027, expanding at a CAGR of 5.2% during the forecast period.
Further, industrial machinery such as industrial robots, material handling equipment, packaging machinery, and machine tools play a vital role in the manufacturing, processing, and production of goods in different industries. As per Acumen Research and Consulting, the industrial machinery market is projected to grow at a CAGR of 5.3% to reach $1.04 trillion by 2032.
Propelled by the demand for automation and the rapid modernization of production processes, the industrial machinery market’s prospects appear solid. In addition, the market’s growth is fuelled by technological advancements across the industry.
Manufacturers are increasingly adopting cutting-edge technologies such as Artificial Intelligence (AI), the Internet of Things (IoT), robotics, data analysis, cloud systems, and more to enhance the efficiency and productivity of their machinery. These technologies provide various benefits, including real-time monitoring, predictive maintenance, and safety in the workplace.
Favorable government initiatives and investments provide numerous growth opportunities to U.S. manufacturers. Two years ago, President Biden signed a $1.2 trillion Bipartisan Infrastructure bill into law, a once-in-generation investment in the nation’s infrastructure and competitiveness.
The deal will deliver nearly $550 billion of new federal spending in America’s infrastructure over the five years, ranging from bridges and roads to the country’s broadband, water, and energy systems.
Given the industry’s robust outlook, investing in fundamentally strong industrial stocks SXI, LMB, and KRT could be wise.
Let’s discuss the fundamentals of these stocks in detail:
Standex International Corporation (SXI)
SXI manufactures and sells various products and services for commercial and industrial markets internationally. The company operates through Electronics; Engraving; Scientific; Engineering Technologies; and Specialty Solutions segments.
On November 2, SXI entered a definitive agreement, through its subsidiary Standex Electronics Japan Corporation, to acquire privately-held, Japanese-based Sanyu Switch Co., Ltd. In the first year of ownership, the company expects a gradual increase in earnings and a double-digit return on invested capital.
“Sanyu’s customer base and product line are highly complementary to our existing business with the potential to further expand key account relationships and capitalize on cross-selling opportunities. Sanyu brings complementary engineering and manufacturing capabilities and will strengthen our global footprint,” said President and CEO David Dunbar.
On July 31, SXI acquired privately held, South Dakota-based Minntronix. With this acquisition, Standex intends to expand its presence in fast-growth end markets in 5G, smart grid, and industrial automation.
Also, Minntronix’s customer base and product line complement its existing business, with the potential to further expand key account relationships and capitalize on cross-selling opportunities.
For the first quarter of fiscal 2024, which ended September 30, 2023, SXI’s net sales grew 2.3% year-over-year to $184.80 million. The company’s adjusted operating income rose 8.2% year-over-year to $29.40 million. Its adjusted net income from continuing operations increased 8.9% from the year-ago value to $20.80 million.
In addition, SXI’s adjusted EBITDA increased 7.2% year-over-year to 35.60 million, respectively. The company’s adjusted EPS was $1.74, up 8.7% year-over-year.
Street expects SXI’s revenue for the third quarter (ending March 2024) to increase 4% year-over-year to $191.61 million. The company’s EPS for the same period is expected to grow 9.3% year-over-year to $1.80. Moreover, the company topped the consensus revenue and EPS estimates in all four trailing quarters, which is impressive.
Shares of SXI have gained 33.2% year-to-date and 27.9% over the past year to close the last trading session at $136.19.
SXI’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
SXI has a B grade for Momentum, Stability and Quality. It is ranked #4 out of 91 stocks in the B-rated Industrial - Equipment industry.
In addition to the POWR Ratings we’ve stated above, we also have SXI ratings for Sentiment, Value, and Growth. Get all SXI ratings here.
Limbach Holdings, Inc. (LMB)
LMB is a provider of integrated building systems solutions. The company majorly operates in two broad segments: General Contractor Relationships and Owner Direct Relationships. It engages in designing, installing, and maintaining mechanical, electrical, plumbing, and control systems; and heating, ventilation, and air-conditioning (HVAC) systems.
On November 2, LMB acquired Industrial Air, LLC (IA), a specialty mechanical contractor based in Greensboro, NC. IA’s business model aligns with LMB’s focus on executing ODR opportunities and offering critical solutions to owners of sophisticated manufacturing and process facilities.
Further, IA is expected to contribute an estimated $30.0 million in revenue and $4.0 million in EBITDA annually.
For the fiscal third quarter ended on September 20, 2023, LMB’s consolidated revenue increased 4.4% year-over-year to $127.80 million, while its gross profit rose 25.7% from the year-ago value to $31.20 million. The company’s adjusted EBITDA was $13.60 million, up 33.6% from the previous year’s quarter.
In addition, the company’s net income and earnings per share amounted to $7.20 million and $0.60, representing increases of 100% and 79.4% year-over-year, respectively.
As per its updated guidance for fiscal year 2023, LMB’s revenue is expected to be between $490 million and $520 million. Also, the company expects its adjusted EBITDA to be in the range of $42-$45 million, up from the prior guidance of $38-$41 million.
Analysts expect LMB’s EPS for the fiscal year (ending December 2023) to increase 173.4% to $1.75. The EPS is estimated to grow 1.3% year-over-year to $503.06 million. Also, the company surpassed the consensus EPS estimates in each of the trailing four quarters, which is impressive.
Over the past six months, the stock has gained 79.3% and 251.8% year-to-date to close the last trading session at $38.59.
LMB’s promising outlook is 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 stock has an A grade for Quality and a B for Growth, Momentum, and Sentiment. Within the A-rated Industrial - Services industry, LMB is ranked #5 of 80 stocks.
Click here to access additional ratings of LMB for Value and Stability.
Karat Packaging Inc. (KRT)
KRT engages in the manufacturing and distribution of single-use disposable products. It offers products in plastic, paper, biopolymer-based, and other compostable forms used in several restaurant and food service settings. The company serves national and regional distributors, restaurant chains, retail establishments, and online customers.
On September 19, KRT completed a strategic initiative to expand its national salesforce with the addition of five experienced sales representatives focusing on the East Coast and Mid-West regions. The new team will further enhance KRT’s regional presence and demonstrate their commitment to fulfilling the long-term growth initiatives.
On November 7, KRT’s Board of Directors approved the payment of a regular quarterly dividend of $0.20 per share on or about November 30, 2023. This dividend payment reflects an increase from the previous quarterly dividend of $0.10 per share.
This increase in its quarterly cash dividend reflects the company’s robust capital structure and ability to provide stable growth in the long run.
During the third quarter that ended September 30, 2023, KRT’s gross profit grew 14% year-over-year to $38.94 million. The company’s operating income rose 43.9% from the prior year’s period to $11.40 million. Its adjusted EBITDA was $15.20 million, up 29.6% year-over-year.
Moreover, the company’s net income increased 48.5% from the year-ago value to $9.10 million. Its adjusted earnings per common share grew 42.4% year-over-year to $0.47.
KRT expects an increase of 2-5% in net sales during the fourth quarter. The gross margin goal for the fourth quarter is estimated at 36-38%, which increased from 32% in the fourth quarter of 2022.
Analysts expect KRT revenue for the fourth quarter (ending December 2023)to increase 3.1% year-over-year to 95.49 million, while the company’s EPS consensus estimate of $0.45 indicates a rise of 60.7% year-over-year.
KRT’s stock has surged 3.4% over the past month and 66.6% year-to-date to close the last trading session at $21.40.
KRT’s robust prospects are reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
The stock has an A grade for Quality, Sentiment, and Momentum. Also, it has a B grade for Growth and Value. KRT topped the list of 20 stocks in the B-rated Industrial - Packaging industry.
Click here to access all KRT’s ratings.
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SXI shares were unchanged in premarket trading Wednesday. Year-to-date, SXI has gained 34.10%, versus a 20.23% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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