Despite the macroeconomic challenges, the industrial machinery industry is thriving, bolstered by industrialization, automation, and smart manufacturing. The demand for industrial machinery is growing thanks to rising investments by the government to boost local manufacturing and to build and improve infrastructure.
Amid this backdrop, it could be wise to buy fundamentally strong industrial machinery stocks: Curtiss-Wright Corporation (CW), Komatsu Ltd. (KMTUY), and Twin Disc, Incorporated (TWIN).
Before diving deeper into the fundamentals of these stocks, let’s discuss why the industrial machinery industry is well-positioned to grow.
The demand for industrial machinery remains robust as governments worldwide focus on building and improving infrastructure. The Infrastructure Investment and Jobs Act (IIJA), signed into law by President Biden in late 2021, authorizes $1.2 trillion to rebuild the country’s crumbling infrastructure and boost domestic manufacturing. This is expected to increase demand for industrial machinery.
Manufacturers are leveraging automation in the industrial machinery industry to boost efficiency and productivity. The integration of automation is helping minimize human error and optimize production schedules, allowing for increased output and reduced downtime and operational costs, thereby boosting demand for industrial machinery.
It is anticipated that rapid technological advancements in the production of industrial machinery will spur innovation and raise productivity, lower costs, and increase profits. Notably, the industrial machinery market is expected to grow at a CAGR of 6% to reach $1.23 trillion by 2032.
AI in the industrial machinery market is set to grow at a 25% CAGR until 2032. The growing demand for automation and efficiency is driving the adoption of AI in the industrial sector. This, in turn, is improving product development capabilities with the help of enhanced efficiency and modern production technologies.
Furthermore, technological advances drive innovation in industrial machinery. The adoption of AI, cloud computing, 3D printing, etc., is boosting efficiency and productivity, leading to better profits and a competitive edge for manufacturers.
Considering these conducive trends, let’s analyze the fundamental aspects of the three Industrial – Machinery picks, beginning with the third choice.
Stock #3: Curtiss-Wright Corporation (CW)
CW provides engineered products, solutions, and services to the aerospace, defense, general industrial, and power generation markets worldwide. It operates through three segments: Aerospace & Industrial, Defense Electronics, and Naval & Power.
On October 5, 2023, CW announced that it was awarded a five-year, $34 million firm-fixed-price indefinite delivery, indefinite quantity contract by the Naval Surface Warfare Center (NSWC) to supply Modular Open Systems Approach (MOSA) based airborne data recorders for use on U.S. and Australian maritime aircraft.
CW is providing the NSWC with commercial-off-the-shelf (COTS) open architecture K-BAR Network Attached Storage solutions for MQ-4C Triton and future PMA-290 aircraft.
On May 1, 2023, CW announced a partnership with Shell Exploration & Production Company to manufacture, test, and provide operational support for an Electro-Submersible Pump (ESP) for a Gulf of Mexico offshore platform of Shell.
This joint initiative will showcase CW’s canned motor technology as a subsea pump solution to demonstrate its canned motor technology as an effective and reliable alternative to current subsea pump technologies that reduce unplanned outages and production interruptions.
Lynn M. Bamford, Chair and CEO at CW, said, “We are excited to be working with one of the leading innovators in subsea oil and gas technologies to deploy Curtiss-Wright’s first-of-a-kind subsea canned motor pump. By proving our canned motor technology in a subsea application, we have an opportunity to bring tremendous value to Shell and to expand Curtiss-Wright’s existing pump technology into an adjacent market.”
In terms of the trailing-12-month net income margin, CW’s 11.77% is 94.1% higher than the 6.07% industry average. Likewise, its 21.82% trailing-12-month EBITDA margin is 61.2% higher than the industry average of 13.54%. Additionally, its 17.55% trailing-12-month EBIT margin is 81.3% higher than the industry average of 9.68%
CW’s total net sales for the fiscal second quarter that ended June 30, 2023, increased 15.6% year-over-year to $704.40 million. Its adjusted operating income increased 17.7% year-over-year to $115.43 million. In addition, the company’s net earnings and adjusted EPS came in at $81 million and $2.15, representing increases of 14.3% and 17.5%, respectively, over the prior-year quarter.
Street expects CW’s EPS and revenue for the quarter ended September 30, 2023, to increase 15.2% and 7.9% year-over-year to $2.38 and $680.36 million, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 22.1% to close the last trading session at $195.67.
CW’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a 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 Momentum, Sentiment, and Quality. Within the A-rated Industrial - Machinery industry, it is ranked #10 out of 78 stocks. To see CW’s Growth, Value, and Stability ratings, click here.
Stock #2: Komatsu Ltd. (KMTUY)
Headquartered in Tokyo, Japan, KMTUY manufactures and sells construction, mining, and utility equipment and forest and industrial machinery worldwide. The company operates through three segments: Construction, Mining, and Utility Equipment; Retail Finance; and Industrial Machinery and other segments.
On September 28, 2023, KMTUY announced the launch of a new 3-ton class electric mini excavator, PC30E-6, equipped with a lithium-ion battery in the Japanese market in October 2023. This environmentally friendly and compact machine aims to create a market for electric construction equipment in Japan. KMTUY aims to achieve carbon neutrality by 2050 by introducing various models.
On September 26, 2023, KMTUY announced the launch of the PC05E-1 electric micro excavator in the Japanese market in October 2023, in collaboration with Honda, as part of their initiative to establish a market for electric construction equipment and support carbon neutrality by 2050. The launch of PC05E-1 will give KMTUY a headstart in the electric construction equipment market.
In terms of the trailing-12-month Capex/Sales, KMTUY’s 5.19% is 75.6% higher than the 2.95% industry average. Likewise, its 15.56% trailing-12-month EBIT margin is 60.7% higher than the 9.68% industry average. Additionally, its 9.86% trailing-12-month net income margin is 62.5% higher than the 6.07% industry average.
For the six months ended September 30, 2023, KMTUY’s net sales increased 12.6% year-over-year to ¥1.82 trillion ($12.18 billion). Its operating income increased 40.3% from the year-ago value to ¥296.98 billion ($1.98 billion).
Its segment profit rose 40% over the prior year period to ¥297.94 million ($1.99 billion). The company’s net income attributable to KMTUY came in at ¥205.55 billion ($1.37 billion), representing an increase of 26.4% over the prior-year period.
Analysts expect KMTUY’s EPS and revenue for the fiscal year ending March 31, 2024, to increase 10.4% and 191.1% year-over-year to $2.80 and $24.45 billion, respectively. Over the past year, the stock has gained 24.6% to close the last trading session at $24.15.
It’s no surprise that KMTUY has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has an A grade for Value and a B for Momentum, Stability, and Sentiment. Within the same industry, it is ranked #5. In total, we rate KMTUY on eight different levels. Beyond what we stated above, we also have given KMTUY grades for Growth and Quality. Get all the KMTUY ratings here.
Stock #1: Twin Disc, Incorporated (TWIN)
TWIN designs, manufactures, and sells marine and heavy-duty off-highway power transmission equipment in the United States, the Netherlands, China, Australia, Italy, and internationally. The company operates in two segments: Manufacturing and Distribution.
In terms of the trailing-12-month asset turnover ratio, TWIN’s 0.98x is 22.3% higher than the 0.80x industry average.
TWIN’s net sales for the fourth quarter ended June 30, 2023, rose 10.5% year-over-year to $83.92 million. The company’s income from operations increased 6% year-over-year to $8.22 million. Moreover, its net income attributable to TWIN and income per share attributable to TWIN common shareholders came in at $8.60 million and $0.62, respectively.
For the quarter ended September 30, 2023, TWIN’s revenue is expected to increase 3.6% year-over-year to $61.20 million. Over the past six months, the stock has gained 43.6% to close the last trading session at $13.50.
TWIN’s positive outlook is reflected in its POWR Ratings. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It has a B grade for Value, Sentiment, and Quality. It is ranked #3 in the Industrial - Machinery industry. To see TWIN’s Growth, Momentum, and Stability ratings, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
KMTUY shares were trading at $22.80 per share on Monday afternoon, down $1.35 (-5.59%). Year-to-date, KMTUY has gained 5.60%, versus a 9.30% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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