The industrial sector is gaining traction because of the extensive use of technology in manufacturing and a strong demand for essential equipment, machinery, and services across various industries. In this context, here are the top three industrial stocks: ABB Ltd (ABBNY) and Tennant Company (TNC), and Thermon Group Holdings, Inc. (THR), to check out this week.
Despite the upheavals caused by rising costs, supply chain halts, production challenges, and underinvestment combined with global recession fears, the industrial sector appears to be rebounding from its earlier lows.
The global industrial machinery market grew significantly from $506.67 billion in 2022 to $545.67 billion in 2023, registering a CAGR of 7.7%. Further, the market is expected to reach $708.30 billion in 2027, growing at a 6.7% CAGR.
It has also been embarked upon that the manufacturing industry must shift gears and move toward enhancing their revenue and protecting their profit margins with a strong eye on adopting Artificial Intelligence (AI) to improve business prospects. The global industrial AI market is projected to grow at a robust CAGR of 52.5%, reaching $58.30 billion by 2029.
There is also a shift toward customization and personalization, with customers seeking unique solutions to meet their specific needs. Manufacturers are leveraging advanced software technologies to produce tailored and adaptable machinery.
This has also laid the groundwork for the arrival of Industry 4.0. According to Market.us, the Industry 4.0 market is projected to surpass around $482 billion by 2032, growing at a robust CAGR of 20.7% between 2023 and 2032.
Given the rosy long-term prospects, the industry should remain in a bright spot this year. That said, let us delve into the fundamental aspects of the featured stocks in detail.
ABB Ltd (ABBNY)
Headquartered in Zurich, Switzerland, ABBNY manufactures and sells electrification, automation, robotics, and motion products. Its product portfolio caters to utilities, industry, transport, and infrastructure customers. The company’s segments include Electrification; Robotics & Discrete Automation; Motion; and Process Automation.
On July 3, ABBNY collaborated with Microsoft Corporation (MSFT) to integrate generative AI capabilities into industrial digital solutions for safer, smarter, and more sustainable operations. By leveraging Microsoft Azure OpenAI Service to complement ABB Ability Genix, ABBNY could offer additional features such as code, image, and text generation, which could help improve productivity and enhance efficiency.
On June 12, the company acquired Eve Systems, GmbH, a Munich-based leader in smart home products. This acquisition will help ABBNY to become a leader in smart home products based on the Matter and Thread standards, enabling interoperability and wireless connectivity.
Further, this strategic move allows the company to enhance the delivery of secure, intelligent, and energy-efficient homes and buildings while strengthening its smart home technology portfolio.
In the first quarter (ended March 31, 2023), ABBNY’s total revenues increased 12.8% year-over-year to $7.86 billion. Its gross profit grew 19.1% from the year-ago value to $2.72 billion, while its income from operations improved by 39.8% from the prior-year quarter to $1.19 billion.
The company’s attributable net income and EPS increased 71.5% and 77.4% from the year-ago values to $1.04 billion and $0.55, respectively.
The consensus revenue estimate of $8.14 billion for the second quarter (ended June 30, 2023) reflects an increase of 12.3% year-over-year. The consensus EPS estimate of $0.47 for the about-to-be-reported quarter indicates a 136.9% improvement year-over-year. The stock has gained 57.4% over the past year to close the last trading session at $39.43.
ABBNY’s POWR Ratings reflect this promising outlook. The stock 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 has an A grade for Growth and Stability and B for Quality. In the 79-stock A-rated Industrial - Machinery industry, it is ranked first. To see additional POWR Ratings for Value, Momentum, and Sentiment for ABBNY, click here.
Tennant Company (TNC)
TNC designs, manufactures, and markets floor cleaning equipment. Its offerings include floor maintenance and cleaning equipment, detergent-free and other sustainable cleaning technologies, aftermarket parts and consumables, equipment maintenance and repair service, and asset management solutions.
On April 25, TNC introduced two new compact models to its lineup of ride-on sweepers: the S680 and S880 sweepers. These new models are designed to simplify the cleaning process and are more maneuverable, which should help attract strong demand. Moreover, the additions are expected to expand TNC’s offerings and increase revenues.
On June 15, it paid its shareholders a quarterly dividend of $0.27 per share. The company’s annual dividend of $1.06 translates to a 1.33% yield on the prevailing prices, while its four-year average dividend yield is 1.34%.
Its dividend payouts have grown at CAGRs of 5.9% and 4.5% over the past three and five years, respectively. Also, it has a record of 50 years of consecutive dividend growth.
TNC’s net sales increased 18.5% year-over-year to $305.80 million in the fiscal first quarter that ended March 31, 2023, while its gross profit rose 26.9% from the year-ago value to $125.50 million.
The company’s adjusted net income amounted to $27.10 million and $1.45 per share, representing improvements of 97.8% and 98.6% from the prior year period, respectively. Also, its adjusted EBITDA came in at $47.90 million, up 71.7% year-over-year.
Street expects TNC’s EPS and revenue to increase 25.7% and 4.1% year-over-year to $1.16 and $291.67 million, respectively, for the fiscal second quarter that ended on June 30, 2023. Moreover, it surpassed the EPS estimates in three of the trailing four quarters, which is impressive.
Over the past nine months, the stock has gained 38.7% to close the last trading session at $79.43.
TNC’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It has a B grade for Growth, Value, Momentum, Sentiment, and Quality. Within the same A-rated industry, it is ranked #2. Click here to see TNC’s rating for Stability.
Thermon Group Holdings, Inc. (THR)
THR provides engineered industrial process heating solutions for process industries. It offers heat tracing products, such as electric heat tracing cables, steam heating solutions, controls, monitoring and software, instrumentation, project services, industrial heating, filtration solutions, and transportation heating products, including track and switch heaters and gas blower accessories.
During the fourth quarter of fiscal 2023 that ended March 31, 2023, THR’s sales increased 19.4% year-over-year to $122.48 million, while its gross profit rose 25.3% from the year-ago value to $51.53 million. Its income from operations came in at $13.88 million, representing a 6.5% increase from the same period last year.
The company’s adjusted net income and EPS stood at $13.99 million and $0.41, up 35% and 32.3% year-over-year, respectively. Also, its adjusted EBITDA improved by 36.8% from the prior-year quarter to $25.08 million.
Analysts expect THR’s EPS for the fiscal 2024 first quarter (ended June 30, 2023) to increase 16% year-over-year by $0.29. Its revenue for the same period is expected to be $99.72 million, registering a 4.5% year-over-year growth. Additionally, it surpassed the EPS and revenue estimates in each of the trailing four quarters, which is promising.
THR’s shares have gained 73.1% over the past nine months and 100.7% over the past year to close the last trading session at $27.43.
It’s no surprise that THR has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. It has an A grade for Sentiment and a B for Growth, Momentum, and Quality. Out of 79 stocks in the same industry, it is ranked #3.
In addition to the POWR Ratings we’ve stated above, we also have THR’s ratings for Value and Stability. Get all THR ratings here.
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ABBNY shares were trading at $39.35 per share on Monday afternoon, down $0.08 (-0.21%). Year-to-date, ABBNY has gained 31.42%, versus a 18.73% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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