The industrial sector is an essential segment that makes business processes more efficient and easier. The segment is rapidly expanding with the automation across different industries and wide adoption of advanced technologies, including AI and IoT.
Given this backdrop, it could be wise to invest in currently undervalued industrial stocks KBR, Inc. (KBR), Ryder System, Inc. (R), and Vontier Corporation (VNT), which can surge in price following their Q3 earnings.
Factors including geopolitical tensions, trade policy changes, and unforeseen disruptions like the COVID-19 pandemic have evolved business operations largely. The manufacturing and supply chains have also undergone major transformations in the last few years, resulting in increased manufacturing activities to cater to growing demands.
Driven by factors like the expansion of manufacturing activities in emerging economies, the rising prevalence of Industry 4.0, and the increasing adoption of automation, the global industrial equipment market is expected to grow exponentially. The market is expected to value $250 billion in 2024 and continue to expand to $347.40 billion by 2031, exhibiting a CAGR of 4.2%.
The rise of automation technologies, such as AI and robotics, is also propelling the industrial equipment market.
Besides, owing to solid economic growth, industrialization, and government investment in infrastructure development, the industrial services market has grown strongly in recent years. The market is poised to grow at a 5.7% CAGR, resulting in a market volume of $44.05 billion by 2028.
The market demand is attributable to factors like increasing demand for distributed control systems (DCS), advanced technologies like IoT, AI, and data analytics in industrial processes, and increasing emphasis on remote monitoring and predictive maintenance.
Given these factors, let’s delve deeper into the fundamentals of industrial stocks: KBR, R, and VNT.
KBR, Inc. (KBR)
KBR provides scientific, technology, and engineering solutions to governments and commercial customers globally. It operates in the Government Solutions and Sustainable Technology Solutions segments. It offers life-cycle support solutions to defense, intelligence, space, aviation, and other programs and missions for military and other government agencies.
In terms of forward EV/Sales, KBR is trading at 1.42x, 25.2% lower than the industry average of 1.90x. Likewise, the stock’s forward EV/EBIT multiple of 15.60 is 6.5% lower than the industry average of 16.68. Also, its forward Price/Sales of 1.20x is 19.1% lower than the industry average of 1.48x.
On September 24, KBR was awarded an estimated $113 million task order to perform aeronautical systems research, development, test, and evaluation for the Air Force Life Cycle Management Center Mobility Directorate (AFLCMC/WL) at Wright-Patterson Air Force Base, Ohio, over a period of five years.
On September 3, KBR completed the acquisition of LinQuest Corporation, a leading provider of advanced engineering, data analytics, and digital integration with a strong history of solving complex technical challenges for national security space missions. The strategic expansion expands KBR’s digital, national security space and intelligence capabilities.
KBR’s revenues increased 5.8% year-over-year to $1.85 billion for the second quarter that ended June 28, 2024. The company’s operating income grew 1710% from the year-ago value to $181 million. Net income attributable to KBR came in at $106 million, and its adjusted EPS rose 12.2% from the prior year’s quarter, respectively.
Street expects KBR’s revenue and EPS for the third quarter (ended September 2024) to increase 10.7% and 12% year-over-year to $1.96 billion and $0.84, respectively. Furthermore, the company surpassed the consensus EPS estimates in each of the trailing four quarters.
Shares of KBR have surged 9.9% over the past month and 11.8% over the past year to close the last trading session at $68.33.
KBR’s robust growth 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. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has a B grade for Growth and Momentum. Within the B-rated Industrial - Services industry, KBR is ranked #8 out of 82 stocks.
Click here to access additional ratings of KBR for Stability, Value, Sentiment, and Quality.
Ryder System, Inc. (R)
R operates as an international logistics and transportation company. The company operates in three segments: Fleet Management Solutions (FMS); Supply Chain Solutions (SCS); and Dedicated Transportation Solutions (DTS).
In terms of forward non-GAAP P/E, R is trading at 12.04x, 40.5% lower than the industry average of 20.22x. Also, the stock’s forward EV/EBIT multiple of 14.07 is 15.6% lower than the industry average of 16.68. Further, its forward Price/Sales of 0.49x is 67.1% lower than the industry average of 1.48x.
On July 15, R entered into a definitive agreement to acquire Pit Stop Fleet Service, allowing expansion and further strengthening Ryder’s Torque by Ryder™ retail mobile maintenance business offering, accelerating the growth of the product solution.
The acquisition is expected to benefit Ryder and Pit Stop customers, allowing greater economies of scale and offering unparalleled flexibility for fleets requiring swift maintenance services.
On July 12, R’s Board of Directors declared a regular quarterly cash dividend of $0.81 per share of common stock, paid on September 20, 2024, to shareholders of record on August 19, 2024. The dividend reflected an increase of $0.10 from the $0.71 cash dividend paid quarterly since July 2023.
R pays an annual dividend of $3.24, which translates to a yield of 2.22% at the current share price. Its four-year average dividend yield is 2.82%. Moreover, the company’s dividend payouts have increased at a CAGR of 9.2% over the past three years. R has raised its dividends for four consecutive years.
For the second quarter that ended June 30, 2024, R’s total revenue increased 10.3% year-over-year to $3.18 billion. Its earnings from continuing operations before income taxes grew 304.5% from the year-ago value to $178 million. In addition, the company’s net earnings came in at $127 million and $2.84 per common share for the quarter, respectively.
According to the outlook for the full year 2024, R expects total revenue growth of 8% from the prior year. The company also expects free cash flow in the range of $150 million to $250 million.
Analysts expect R’s revenue for the fourth quarter (ending December 2024) to increase 11.5% year-over-year to $3.37 billion, and its EPS for the same quarter is expected to grow 20.9% year-over-year to $3.57. Moreover, the company has topped the consensus EPS estimates in all four trailing quarters.
R’s shares have gained 21.5% over the past six months and 42.5% over the past year to close the last trading session at $145.99.
R’s sound fundamentals are reflected in its POWR Ratings. The stock has a B grade for Stability and Value. Within the B-rated Industrial - Services industry, R is ranked #38 among 82 stocks.
In addition to the POWR Ratings we’ve stated above, we also have R ratings for Momentum, Growth, Sentiment, and Quality. Get all R ratings here.
Vontier Corporation (VNT)
VNT provides mobility ecosystem solutions globally. The company operates through Mobility Technologies; Repair Solutions; and Environmental and Fueling Solutions segments.
VNT’s forward EV/EBITDA of 10.39x is 27.1% lower than the industry average of 14.25x. Similarly, the stock’s forward non-GAAP P/E multiple of 11.60 is 51.5% lower than the industry average of 23.92. Also, its forward Price/Cash Flow of 11.07x is 51.2% lower than the industry average of 22.70x.
On September 25, Driivz, an EVolve™e-mobility portfolio company of VNT and its partner Francis Energy, the fourth-largest owner and operator of fast-charging stations, announced a milestone update that they have successfully brought 1,100 charging ports online at over 200 locations to support over 20,000 drivers nationwide.
Also, on September 10, Gilbarco Veeder-Root, a Vontier company, secured a second significant tender with Indian companies in August. The tender is from Indian Oil Corporation Limited, where GVR has secured a large position for retail fuel dispensers for a total of $17 million in equipment and $10 million in services support.
VNT reported sales of $696.40 million for the second quarter that ended June 28, 2024. Its operating profit stood at $114.10 million. Also, the company’s adjusted net earnings came in at $97.60 million and $0.63 per share for the quarter, respectively.
Furthermore, the company’s adjusted free cash flow and adjusted EBITDA stood at $25.90 million and $151.70 million.
Analysts expect VNT’s EPS for the first quarter (ending March 2025) to increase 17.6% year-over-year to $0.87, and its revenue is estimated to increase 3.6% year-over-year to $783.10 million for the same quarter. Also, the company surpassed the consensus EPS and revenue estimates in three of the trailing four quarters.
VNT’s stock has soared 3.2% over the past month and 8.3% over the past year to close the last trading session at $33.20.
VNT’s POWR Ratings reflect its robust outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
VNT has a B grade for Quality and Value. It is ranked #24 among the 87 stocks in the Industrial - Equipment industry.
Click here to access additional VNT ratings for Stability, Sentiment, Momentum, and Growth.
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KBR shares were unchanged in after-hours trading Wednesday. Year-to-date, KBR has gained 24.09%, versus a 22.57% rise in the benchmark S&P 500 index during the same period.
About the Author: Rjkumari Saxena
Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions.
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