With an enduring tailwind of political and financial support set to increase domestic manufacturing activity, industrial stocks CIRCOR International, Inc. (CIR), The Manitowoc Company, Inc. (MTW), and DXP Enterprises, Inc. (DXPE) are well-positioned to deliver solid returns.
Amid souring relationship and rising tensions between the U.S and China, not helped by Xi Jinping’s ascension to an unprecedented third term in power, there is an ever-increasing imperative for the American economy to become self-reliant in manufacturing and critical infrastructure in an increasingly fragmented world that also needs to manage an energy transition to combat the common threat of climate change.
To that end, the Bipartisan Infrastructure Law has already provided more than $185 billion in funding for over 6,900 projects, including 2,800 bridge repair and replacement projects.
In addition, the CHIPS and Science Act has authorized $280 billion to be doled out for domestic manufacturing of semiconductors and research in the applied sciences at agencies such as the NSF.
The Inflation Reduction Act (IRA) of 2022 aims to catalyze investments in domestic manufacturing capacity, encourage procurement of critical supplies domestically or from free-trade partners, and jump-start R&D and commercialization of leading-edge technologies such as carbon capture and storage and clean hydrogen.
The aforementioned legislations introduce $2 trillion in new federal spending over the next ten years. As a result, industrial production in the United States is expected to maintain its upward trajectory despite near-term macroeconomic headwinds.
With the domestic economy at the dawn of an industrial renaissance, let’s take a closer look at the featured stocks.
CIRCOR International, Inc. (CIR)
CIR provides mission-critical flow control products and services. The company operates through two segments: Industrial; and Aerospace & Defense.
For the fiscal fourth quarter (ended December 31, 2022), CIR’s net revenue increased 4.7% year-over-year to $214.53 million. Organic orders increased by 19%, driven by its Industrial segment, which benefited from aftermarket growth in core Industrial and a positive downstream market.
During the same period, CIR’s gross profit increased 18.3% year-over-year to $76.36 million, while its adjusted operating income increased 62.2% year-over-year to $33.22 million. The company’s adjusted EBITDA increased 49.6% year-over-year to $37.34 million. As a result, its adjusted net income increased 68.2% and 67.4% year-over-year to $15.76 million and $0.77 per share, respectively.
CIR’s trailing-12-month gross profit margin of 33.02% is 13.6% above the industry average of 29.08%, while its trailing-12-month EBITDA margin of 13.55% also compares favorably to the industry average of 13.34%.
CIR’s revenue for the first quarter of the fiscal year ending March 31, 2023, is expected to increase 2.7% year-over-year to $190.60 million, while its EPS is expected to increase 160% year-over-year to $0.13. It has also impressed by surpassing the consensus EPS estimates in three of the trailing four quarters.
The stock has gained 7.8% over the past month and 11.4% over the past year to close the last trading session at $31.32, above its 50-day and 200-day moving averages of $27.64 and $21.56, respectively. Despite its recent gains, the stock is still trading at a forward Price/Sales multiple of 0.78, 39.10% below the industry average of 1.28.
CIR has an overall rating of A, which equates to a Strong Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
CIR also has an A grade for Growth and a B for Value, Sentiment, and Momentum. It is ranked #14 of 89 stocks in the Industrial - Equipment industry.
Click here for additional ratings for CIR’s Stability and Quality.
The Manitowoc Company, Inc. (MTW)
As a provider of engineered lifting solutions, MTW designs, manufactures, markets, distributes, and supports comprehensive product lines of mobile hydraulic cranes, lattice-boom crawler cranes, boom trucks, and tower cranes. The company’s operating segments include: the Americas; Europe and Africa (EURAF); and the Middle East and Asia Pacific (MEAP).
Despite the unfavorable impact of $31.3 million from changes in foreign currency exchange rate, MTW’s net sales for the fiscal fourth quarter (ended December 31, 2022) increased 24.9% year-over-year to $621.6 million. During the same period, the company’s adjusted EBITDA and operating income increased 50.6% and 108% year-over-year to $51.5 million and $36.4 million, respectively.
As a result, MTW’s adjusted net income increased 176.6% and 184.6% year-over-year to $26 million and $0.74, respectively.
MTW’s revenue for the first quarter of the fiscal year ending March 31, 2023, is expected to increase 3.8% year-over-year to $476.60 million, while its EPS is expected to increase to $0.13, compared to $0.03 during the previous-year quarter.
The stock has dipped 12.3% over the past month to close the last trading session at $16.49, above its 50-day and 200-day moving averages of $15.76 and $11.29, respectively. The stock’s forward Price/Sales and Price/Book of 0.28x and 1.01x compare favorably to the respective industry averages of 1.28x and 2.41x, indicating upside potential.
MTW has an overall rating of B, which translates to a Buy in our proprietary rating system. It has an A grade for Growth and Value and a B for Momentum.
MTW is ranked #32 of 79 stocks in the A-rated Industrial - Machinery industry.
Additional ratings for the stock’s Stability, Sentiment, and Quality can be found here.
DXP Enterprises, Inc. (DXPE)
DXPE is involved in the distribution of maintenance, repair, and operating (MRO) products, equipment, and services to energy and industrial customers. The Company’s segments include Service Centers (SC); Supply Chain Services (SCS); and Innovative Pumping Solutions (IPS).
On December 15, 2022, DXPE announced the authorization of a stock repurchase program of up to 2.8 million shares of its outstanding common stock, worth $85 million. The acquisitions would be effected via open market transactions over the next 24 months at the discretion of management. This is after the successful completion of the previous program, whereby the company repurchased 1.5 million shares under the 2-year program, which began in May of 2021.
The continuing repurchase of outstanding shares demonstrates the management’s confidence in the company’s prospects while increasing the intrinsic value of the holdings of the existing shareholders.
In a show of financial strength and confidence amid increasing interest rates, on November 22, DXPE announced that it would be raising an incremental $105 million in Term Loan B (TLB) borrowings. This would be added to the initial $330 million TLB borrowings raised in December 2020 to constitute $417.2 million in Senior Secured TLB borrowings.
These loans are priced at Term SOFR plus an applicable margin of 5.25 percent and will mature in 2027. The company intends to use these proceeds to repay borrowings under DXP’s Asset Based Loan (ABL) and the remaining for general corporate purposes, potential acquisitions, and transaction fees and expenses.
On March 20, DXPE provided preliminary updates on its financial performance for the fiscal year ending December 31, 2022. The company’s sales are expected to increase 26%-31% year-over-year to $1.40 billion-$1.46 billion.
During the same period, DXPE’s operating income and EBITDA are expected to increase by 101% to 126% and 63% to 78% over the previous fiscal to come in the range of $80 to $90 million and $110 to $120 million, respectively. As a result, its EPS for the fiscal year 2022 is expected to be between $1.92 and $2.07, indicating a 131% to 149% increase year-over-year.
DXPE’s stock has dipped 8.1% over the past month to close the last trading session at $26.83. This is 12.25x its trailing-12-month earnings, 23.8% lower than the industry average of 16.08x.
DXPE has an overall rating of B, which translates to a Buy in our POWR Ratings system. It has an A grade for Growth and a B for Value, Sentiment, and Momentum.
DXPE is ranked #19 of 89 stocks in the Industrial - Equipment industry.
Click here for additional POWR Ratings for Stability and Quality of DXPE.
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CIR shares were trading at $31.13 per share on Thursday afternoon, down $0.19 (-0.61%). Year-to-date, CIR has gained 29.92%, versus a 5.80% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.
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