After rebounding strongly post the pandemic, industrial production declined 0.5% in June for the second consecutive month, while manufacturing output fell 0.3%. Despite the slowdown, the rise of Industry 4.0 and smart manufacturing, the demand for precision machinery, and the government’s push to boost infrastructure development are all expected to drive the demand for industrial machinery.
Therefore, it could be wise to invest in fundamentally strong industrial stocks Vontier Corporation (VNT), Belden Inc. (BDC), and LSI Industries Inc. (LYTS).
Before diving deeper into the fundamentals of these stocks, let’s discuss why the industrial-machinery sector is well-positioned to grow.
Despite the monthly declines, industrial production rose 0.7% year-over-year in the second quarter, while manufacturing output increased 1.5% year-over-year. Despite an overall slowdown in demand, machinery manufacturers reported that “orders and business are steady with a healthy backlog, but new prospective orders seem to be getting pushed back into 2024.”
The demand for industrial machinery is expected to get a boost from government policies such as Infrastructure Investment and Jobs Act, the Inflation Reduction Act, and the CHIPS and Science Act, which aim at boosting domestic manufacturing. Additionally, the shift to smart manufacturing drives the demand for interconnected machinery.
The industrial machinery market is projected to grow at a CAGR of 6.7% to reach $708.30 billion by 2027. Investors’ interest in industrial stocks is evident from the SPDR Select Sector Fund – Industrial ETF’s (XLI) 18.4% returns over the past nine months.
Let’s take a closer look at their fundamentals.
Vontier Corporation (VNT)
VNT engages in the research and development, manufacture, sale, and distribution of technical equipment, components, software, and services for manufacturing, repairing, and servicing in the mobility ecosystem worldwide. It operates through two segments: Mobility Technologies, and Diagnostics and Repair Technologies.
On April 17, 2023, VNT announced the sale of its Global Traffic Technologies, LLC (GTT) business to Miovision. VNT’s President and CEO Mark Morelli said, “This transaction is another example of our continued commitment to transforming our portfolio, focused on delivering smart, sustainable solutions to lead the evolution of the mobility ecosystem while driving top-tier financial performance for our shareholders.”
“As part of our disciplined capital allocation approach, we expect to deploy the net proceeds toward future debt reduction and share repurchase,” he added.
VNT’s revenue grew at a CAGR of 5.7% over the past three years. Its EBITDA grew at a CAGR of 3.8% over the past three years. In addition, its total assets grew at a CAGR of 15.4% over the past three years.
For the fiscal second quarter ended June 30, 2023, VNT’s sales came in at $764.40 million. Additionally, its adjusted net earnings and EPS came in at $105.40 million and $0.67, respectively.
VNT’s EPS and revenue for fiscal 2024 are expected to increase 10.2% and 2.5% year-over-year to $3.15 and $3.17 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 61% to close the last trading session at $30.36.
VNT’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #6 out of 91 stocks in the Industrial - Equipment industry. It has a B grade for Value, Momentum, Sentiment, and Quality. Click here to see VNT’s Growth and Stability ratings.
Belden Inc. (BDC)
BDC is a global supplier of specialty networking solutions. The company’s segments include Enterprise Solutions and Industrial Solutions. The Enterprise Solutions segment is a provider of network infrastructure, broadband solutions, and cabling and connectivity solutions. Its Industrial Solutions segment is a provider of networking and machine connectivity products.
In April 2023, BDC acquired Berthold Sichert GmbH for approximately $98 million. Sichert designs and manufactures a portfolio of polycarbonate street cabinets utilized in outside plant passive optical networks and 5G networks.
BDC’s President and CEO Ashish Chand said, “Sichert is a great addition to the Belden team. It operates in well-established markets, with proven technologies and deep customer relationships. As we look to improve our solution capabilities, Sichert further strengthens our fiber portfolio and expands our offerings in key growth markets.”
BDC’s revenue grew at a CAGR of 8% over the past three years. Its EBITDA grew at a CAGR of 10.7% over the past three years.
BDC’s revenues for the second quarter ended July 2, 2023, increased 3.9% year-over-year to $692.25 million. Its adjusted gross profit rose 15.2% over the prior-year quarter to $263.73 million. The company’s adjusted EBITDA increased 11% year-over-year to $123.18 million.
Its adjusted net income from continuing operations attributable to BDC stockholders rose 15.3% year-over-year to $83.37 million. Also, its adjusted EPS came in at $1.91, representing an increase of 19.4% year-over-year.
For the quarter ending September 30, 2023, BDC’s EPS and revenue are expected to increase 4.4% and 5.1% year-over-year to $1.85 and $704.65 million, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 45.9% to close the last trading session at $94.05.
BDC’s POWR Ratings reflect solid prospects. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It is ranked #13 in the Industrial - Equipment industry. It has a B grade for Value, Sentiment, and Quality. To see the other ratings of BDC for Growth, Momentum, and Stability, click here.
LSI Industries Inc. (LYTS)
LYTS produces and sells non-residential lighting and retail display solutions in the United States, Canada, Mexico, Australia, and Latin America. It operates in two segments: Lighting and Display Solutions.
On April 20, 2023, LYTS announced that it was selected as the lighting partner for an electric vehicle (EV) battery production facility in Kentucky. The order is for nearly 15,000 lighting fixtures and is expected to start shipping in late August. This order would help LYTS to showcase its expertise and establish itself as a leading manufacturer of energy-efficient lighting solutions.
LYTS’ revenue grew at a CAGR of 15.7% over the past three years. Its EBIT grew at a CAGR of 103.2% over the past three years. In addition, its levered FCF grew at a CAGR of 19.5% over the past three years.
For the third quarter ended March 31, 2023, LYTS’ net sales increased 7% year-over-year to $117.47 million. Its adjusted net income rose 30.4% year-over-year to $5.50 million. The company’s adjusted EBITDA increased 32% over the prior-year quarter to $11.23 million. Also, its adjusted EPS came in at $0.19, representing an increase of 26.7% year-over-year.
Analysts expect LYTS’ EPS and revenue for the quarter ending September 30, 2023, to increase 13.6% and 4.7% year-over-year to $0.25 and $133 million, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 106.1% to close the last trading session at $12.53.
LYTS’ POWR Ratings reflect this positive outlook. It has an overall rating of A, which translates to Strong Buy in our proprietary rating system.
It has an A grade for Value and Sentiment and a B for Quality. Within the same industry, it is ranked #4. Click here to see the additional ratings of LYTS for Growth, Momentum, and Stability.
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
VNT shares were trading at $29.21 per share on Thursday morning, down $1.15 (-3.79%). Year-to-date, VNT has gained 51.38%, versus a 18.36% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
Is Now the Time to Invest in These 3 Industrial Stocks? StockNews.com
