Despite labor shortages, supply chain disruptions, and other headwinds, the industrial sector is on the front foot. With production of industrial goods surpassing pre-pandemic levels, the demand for industrial machinery and services is surging significantly. The industry is also making a generational shift to smart factories with the adoption of advanced digital technologies.
Given the industry’s robust outlook, it could be wise to invest in fundamentally sound industrial stocks Columbus McKinnon Corporation (CMCO), Quanex Building Products Corporation (NX), and Limbach Holdings, Inc. (LMB) for substantial returns.
Production of industrial goods, including automobiles, computers, consumer electronics, aircraft, chemicals, heavy machinery, oil, and steel are exceeding pre-pandemic levels. With continued growth in the manufacturing sector, demand for industrial equipment and services is on the rise.
In recent years, the industrial machinery sector has grown rapidly, fueled by demand for automation and the modernization of production processes. Manufacturers across multiple end-use industries use efficient machinery to boost productivity and accuracy in production processes, resulting in cost savings and improved quality of goods.
As per a report by Acumen Research and Consulting, the global industrial machinery market is projected to reach $1.04 trillion by 2032, exhibiting a growth at a CAGR of 5.3% during the forecast period. Rising demand for sustainable and green industrial equipment would create ample market opportunities.
In addition, the global industrial services market is expected to total $40.75 billion by 2027, growing at a CAGR of 5.2%.
The growing development of smart factories and Industry 4.0 will further propel the industrial sector’s prospects. The manufacturing industry is making a transformative shift from machine-based assembly lines to smart factories, using innovative technologies, such as robotics, the Internet of Things (IoT), data analytics, augmented reality (AR), and more.
The U.S. manufacturing industry will continue to capitalize on the momentum generated by three major pieces of legislation signed into law in 2021 and 2022 —the Infrastructure Investment and Jobs Act (IIJA), the Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act, and the Inflation Reduction Act (IRA).
Given the industry’s solid prospects, investing in fundamentally strong industrial stocks CMCO, NX, and LMB could be wise.
Let’s discuss the fundamentals of these stocks in detail:
Columbus McKinnon Corporation (CMCO)
CMCO designs, manufactures, and markets intelligent motion solutions for moving, lifting, positioning, and securing materials. The company offers manual hoists, electric and air hoists, winches, hydraulic jacks, trolleys, and lifting tables. It also provides power and motion technology products like linear motion products, elevators, and mining drives.
On October 24, 2023, CMCO’s Board of Directors approved the payment of a regular quarterly dividend of $0.07 per common share. The dividend was paid on November 20, 2023, to shareholders of record at the close of business on November 10, 2023. Columbus McKinnon has about 28.7 million shares of common stock outstanding.
CMCO pays an annual dividend of $0.28, which translates to a yield of 0.76% at the current share price. Its four-year average dividend yield is 0.69%. Moreover, the company’s dividend payouts have increased at a CAGR of 8.1% over the past five years.
In terms of forward non-GAAP P/E, CMCO is trading at 12.61x, 32.8% lower than the industry average of 18.76x. Likewise, the stock’s forward Price/Book multiple of 1.21 is 54% lower than the industry average of 2.63.
CMCO’s revenue and EBITDA have grown at respective CAGRs of 12.6% and 20.1% over the past three years. The company’s EBIT has increased 21.2% over the same timeframe, while its net income and EPS have improved at CAGRs of 43.1% and 34.9%, respectively.
For the fiscal 2024 second quarter ended September 30, 2023, CMCO’s net sales grew 11.5% year-over-year to $258.40 million. The company’s adjusted gross profit rose 15.8% year-over-year to $99.98 million. Its adjusted income from operations came in at $34.10 million, up 19.2% from the prior year’s quarter.
In addition, CMCO’s net income for the quarter amounted to $15.8 million, a 12% growth from the previous year’s quarter. Its adjusted EPS was $0.76, an increase of 4.1% year-over-year. Its adjusted EBITDA increased 17.1% year-over-year to $45.70 million.
Street expects CMCO’s revenue for the fourth quarter (ending March 2024) to increase 5.3% year-over-year to $267.38 million. The company’s EPS for the ongoing quarter is expected to grow 10.6% year-over-year to $0.89. Moreover, the company topped the consensus revenue and EPS estimates in three of the trailing four quarters, which is impressive.
Shares of CMCO have surged marginally over the past year to close the last trading session at $35.99.
CMCO’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
CMCO has an A grade for Growth and Sentiment. The stock also has a B grade for Value and Stability. It is ranked #8 out of 79 stocks in the A-rated Industrial - Machinery industry.
In addition to the POWR Ratings we’ve stated above, we also have CMCO ratings for Momentum and Quality. Get all CMCO ratings here.
Quanex Building Products Corporation (NX)
NX offers components for the fenestration industry internationally. It operates through three segments: North American Fenestration; European Fenestration; and North American Cabinet Components. The company provides flexible insulating glass spacers, extruded vinyl profiles, window and door screens, and precision-formed metal and wood products.
On December 13, NX’s Board of Directors declared a quarterly cash dividend of $0.08 per share on the company’s common stock, paid on December 29, 2023, to shareholders of record on December 19, 2023.
NX pays an annual dividend of $0.32, which translates to a yield of 1.04% at the prevailing share price. Its four-year average dividend yield is 1.54%. Also, the company’s dividend payouts have increased at a CAGR of 7.2% over the past ten years.
In terms of forward EV/Sales, NX is trading at 0.95x, 46.7% lower than the industry average of 1.78x. Also, the stock’s forward Price/Sales of 0.90x is 35.1% lower than the industry average of 1.39x.
Over the past three years, NX’s revenue and EBITDA have grown at CAGRs of 9.9% and 12.7%, respectively. The company’s EBIT has increased 23.3% over the same timeframe, while its net income and EPS have improved at respective CAGRs of 28.9% and 28.8%.
During the fourth quarter that ended October 31, 2023, NX reported net sales of $295.50 million. The company’s adjusted net income and adjusted EPS increased 24.8% and 26.7% from the prior year’s quarter to $31.20 million and $0.95, respectively. Its adjusted EBITDA was $50.80 million, up 31.3% year-over-year.
In addition, the company’s cash inflows from operating activities and free cash flow were $44.50 million and $29.60 million for the quarter, respectively.
Analysts expect NX’s revenue and EPS for the fiscal year (ending October 2025) to increase 1.8% and 13.5% year-over-year to $1.13 billion and $2.65, respectively. Further, the company has surpassed the consensus revenue estimates in each of the trailing four quarters.
NX’s stock has surged 11% over the past six months and 22.9% over the past year to close the last trading session at $30.57.
NX’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
The stock has an A grade for Momentum. Also, it has a B grade for Growth, Quality, Stability, and Value. NX has topped the list of 46 stocks in the A-rated Industrial – Building Materials industry.
Click here to access all NX’s ratings.
Limbach Holdings, Inc. (LMB)
LMB operates as an integrated building systems solutions provider. The company majorly operates through two segments: General Contractor Relationships; and Owner Direct Relationships. It engages in designing, installing, and maintaining mechanical, electrical, plumbing, and control systems and heating, ventilation, and air-conditioning (HVAC) systems.
On November 2, LMB acquired Industrial Air, LLC (IA), a specialty mechanical contractor based in Greensboro, NC, for an enterprise value of $13.5 million in an all-cash transaction. IA’s business model aligns with LMB’s focus on executing ODR opportunities and catering by offering critical solutions to owners of sophisticated manufacturing and process facilities.
Furthermore, IA is expected to contribute an estimated $30 million in revenue and $4 million in EBITDA annually.
In terms of forward EV/EBITDA, LMB is trading at 9.19x, 19.1% lower than the industry average of 11.35x. Moreover, the stock’s forward Price/Sales multiple of 0.83 is 40.4% lower than the industry average of 1.39.
LMB’s EBITDA and net income have grown at respective CAGRs of 16.4% and 47.1% over the past three years. The company’s EBIT has improved at a CAGR of 20.3% over the same timeframe, while its EPS and tangible book value have grown at CAGRs of 29.7% and 33.5%, respectively.
In the third quarter that ended September 30, 2023, LMB’s revenue increased 4.4% year-over-year to $127.77 million, while its gross profit rose 25.7% from the year-ago value to $31.24 million. Its operating income came in at $9.83 million, up 82.2% from the prior year’s quarter. The company’s adjusted EBITDA grew 33.6% year-over-year to $13.63 million.
In addition, the company’s net income and earnings per share amounted to $7.19 million and $0.61, indicating increases of 97.5% and 79.4% year-over-year, respectively.
As per the company’s updated guidance for the fiscal year 2023, LMB’s revenue is expected to be in the range of $490 million to $520 million. The company expects adjusted EBITDA to be between $42 million and $45 million, compared to the previous guidance of $38 million and $41 million.
Street expects LMB’s EPS for the first quarter (ending March 2024) to increase 53.7% year-over-year to $0.42, and its revenue is estimated to grow 9.1% year-over-year to $131.98 million. In addition, the company has surpassed the consensus EPS estimates in each of the trailing four quarters.
Over the past six months, the stock has gained 37.3% and 200.7% over the past year to close the last trading session at $37.77.
LMB’s POWR Ratings reflect its promising outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
The stock has an A grade for Quality and a B for Growth, Momentum, and Sentiment. Within the A-rated Industrial - Services industry, LMB is ranked #4 of 79 stocks.
Click here to access additional ratings of LMB for Value and Stability.
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CMCO shares were unchanged in premarket trading Wednesday. Year-to-date, CMCO has declined -7.77%, versus a -0.08% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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