The industrial sector has recently experienced notable growth thanks to numerous technological advancements and increased infrastructure-related projects nationwide. Given the industry’s growth prospects, investors could consider quality industrial stocks Griffon Corporation (GFF), Resideo Technologies, Inc. (REZI), and Primoris Services Corporation (PRIM).
The growing adoption of digital technologies, such as loT (Internet of Things), Al (Artificial Intelligence), robotics, and data analytics, creates ample opportunities for industrial service providers. The movement, known as Industry 4.0, is the next stage of the digitalization of manufacturing.
As several industries undergo rapid digital transformation, industrial services play a crucial role in ensuring the efficient implementation of Industry 4.0, leading to enhanced operational capabilities, predictive maintenance, and data-driven decision-making. The global industrial services market is expected to grow at a CAGR of 8.6% by 2028.
Also, the global construction materials market is driven by the rising population and urbanization. Moreover, the growing emphasis on sustainability and environmental responsibility is causing a shift in the market. The surge in demand for green construction materials is expected to drive market growth in the upcoming years.
The global construction materials market is estimated to reach $1.73 trillion by 2030, exhibiting a CAGR of 3.9%.
Additionally, government support through initiatives like the CHIPS and Science Act, which earmarks $50 billion for the domestic semiconductor sector, and the Infrastructure Investment and Jobs Act (IIJA), which allocates $1.2 trillion for transportation and infrastructure, have opened up fresh avenues for companies in the industry.
Considering these conducive trends, let's take a look at the fundamentals of the three best industrial stocks: GFF, REZI, and PRIM.
Griffon Corporation (GFF)
GFF provides consumer and professional along with home and building products in the United States, Europe, Canada, Australia, and internationally. The company operates through two segments: Home and Building Products; and Consumer and Professional Products.
On February 20, 2024, GFF entered into an agreement to repurchase 1.5 million shares of the company’s common stock owned by Voss Capital. They were repurchased at a price of $65.50 per share, a 3.7% discount from the closing price of the company’s common stock on February 16, the last full trading day before the execution of the Stock Purchase Agreement.
GFF’s trailing-12-month gross profit margin of 39.02% is 27.8% higher than the 30.53% industry average. Likewise, the stock’s trailing-12-month EBITDA margin of 17.77% is 30.5% higher than the 13.62% industry average.
GFF’s total revenue came in at $643.15 million for the fiscal first quarter that ended December 31, 2023. Its gross profit grew 1.2% from the prior year’s quarter to $236.64 million. Its adjusted EBITDA increased 7.2% year-over-year to $116.35 million. Its free cash flow came in at $132.52 million, up 60.5% from the previous year’s period.
Street expects GFF’s revenue to increase marginally year-over-year to $689.59 million in the fiscal second quarter (ending June 2024). The company’s EPS for the same period is expected to grow by 1.6% year-over-year to $1.31.
The stock has gained 94.9% over the past nine months to close the last trading session at $72.97.
GFF’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 POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has an A grade in Growth and Momentum and a B in Quality. It is ranked #6 out of 46 stocks in the A-rated Industrial - Building Materials industry.
Beyond what is stated above, we’ve also rated GFF for Value, Stability, and Sentiment. Get all GFF ratings here.
Resideo Technologies, Inc. (REZI)
REZI develops, manufactures, and sells comfort, energy management, and safety and security solutions to the commercial and residential end markets in the United States, Europe, and internationally. The company operates in two segments: Products and Solutions; and ADI Global Distribution.
On December 7, 2023, REZI and Ford Motor Co. (F) teamed up for a joint simulation project to explore vehicle-to-home (V2H) energy management called the “EV-Home Power Partnership.” This project aims to explore the potential of electric vehicle batteries to support optimal home energy management. This collaboration should bode well for both the companies.
REZI’s trailing-12-month levered FCF margin of 6.62% is marginally higher than the industry average of 6.58%. Also, its trailing-12-month ROTC of 8.78% is 25.2% higher than the industry average of 7.02%.
REZI’s net revenue for the fourth quarter ended December 31, 2023, came in at $1.54 billion. Its income from operations increased 50% year-over-year to $147 million. Its adjusted EBITDA grew 11.5% over the prior-year quarter to $136 million. Its non-GAAP net income applicable to common shares rose 91.9% year-over-year to $71 million.
In addition, the company’s non-GAAP net income per common share came in at $4.15, representing an increase of 92% year-over-year.
Analysts expect REZI’s EPS for the second quarter ending June 2024 to increase 28.1% year-over-year to $0.44. For the fiscal year ending December 2025, the company’s EPS and revenue are expected to grow 11.7% and 2.7% from the prior year to $1.86 and $6.33 billion, respectively.
Shares of REZI have gained 39.3% over the past nine months to close the last trading session at $22.50.
REZI’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to Strong Buy in our proprietary rating system.
REZI has a B grade for Growth, Momentum, and Quality. It is ranked #3 in the A-rated Industrial - Services industry.
In addition to the POWR Ratings highlighted above, one can access REZI’s ratings for Value, Stability, and Sentiment here.
Primoris Services Corporation (PRIM)
PRIM provides a wide range of specialty construction, fabrication, maintenance, replacement, and engineering services in the United States and Canada. The company operates through Utilities and Energy/Renewables segments.
On February 5, 2024, PRIM announced various awards valued at around $1.10 billion secured by its Energy segment. The awards comprise more than $700 million for engineering, procurement, and construction of utility-scale solar projects secured in the fourth quarter of 2023.
Also, the company secured a natural gas repowering project with battery energy storage valued at nearly $350 million in the first quarter of this year. PRIM’s strong client relationships and execution expertise continue to boost growth in its backlog of projects in the Energy segment.
In terms of forward non-GAAP P/E, PRIM is trading at 13.08x, 30.5% lower than the industry average of 18.82x. Likewise, the stock’s forward EV/EBIT and Price/Sales multiples of 11.78 and 0.36 are lower than the respective industry averages of 15.91 and 1.50.
In the fiscal fourth quarter that ended December 31, 2023, PRIM’s revenue increased 13.5% year-over-year to $1.52 million, and its gross profit increased 2.1% year-over-year to $156.60 million. The company’s net income came in at $37.66 million, or $0.71 per share, respectively.
Analysts expect PRIM’s revenue for the first quarter (ending March 2024) to increase 10.3% to $1.39 billion. Its EPS is expected to grow 42.2% year-over-year to $0.26 in the current quarter. Also, the company has topped the consensus EPS estimates in each of the trailing four quarters, which is impressive.
PRIM’s shares have gained 70.7% over the past year to close the last trading session at $40.90.
It’s no surprise that RPIM has an overall rating of B, which equates to Buy in our proprietary rating system.
PRIM has a B grade for Momentum, Growth, Value, and Sentiment. Within the A-rated Industrial - Services industry, it is ranked #10.
In addition to the POWR Ratings we’ve stated above, we also have PRIM’s ratings for Stability and Quality. Get all PRIM ratings here.
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GFF shares were trading at $73.42 per share on Tuesday morning, up $0.45 (+0.62%). Year-to-date, GFF has gained 20.72%, versus a 10.02% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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