WWe call our time the digital age, but heavy industry has hardly followed the path of the dinosaurs. Even though the digital economy is the engine of growth, there is – and always will be – an unconditional need for physical hardware. Manufacturing, construction, agriculture – these are vital industries, and they will always find immediate demand.
This is the key fact behind the JPMorgan analyst that of Anne Duignan look at industrial stocks. She finds that manufacturers are generally on hold right now – supply and distribution chains have still not recovered from the COVID crisis, and transportation networks remain in difficulty (saving shipments on the West Coast of the United States is a good example). But, Duignan believes the industry is poised to make gains in the future, as the economy continues to normalize.
What this means for investors, according to Duignan, is that now is the time to buy some promising names. It upgraded three stocks – one in the construction, trucking and agriculture segments – to buy ratings. We retrieved the details of his choices via the TipRanks platform, to find out what drew his attention to these companies. It turns out that all are valued at purchase and offer strong upside potential; here are the details, along with Duignan’s commentary.
We will start with manufacturing and construction, where Terex is a global company involved in the production of aerial work platforms, construction cranes and materials processing machines. The company manages the entire production chain, from design and construction to support and maintenance. Terex products are used in construction projects, as well as in the quarrying, recycling, mining, energy and transportation industries, and the company has a worldwide presence in both manufacturing and the sale.
Earlier this year, Terex released its 1Q21 financial results. The company posted $ 864.2 million in revenue, the best revenue in the past 5 quarters. In addition, Terex reported $ 39.7 million in “income from continuing operations,” which amounted to 56 cents per share. This result is the highest since the third quarter of 2019.
Strong operational execution, along with an improved sales outlook, has led Terex to adjust its annual outlook for 2021. The company expects total revenue of $ 3.7 billion this year, along with EPS between $ 2.35 and $ 2.55. Reaching this revenue target will result in a 23% year-over-year gain.
In addition to strong earnings, Terex declared its quarterly dividend in May of this year. The payout, at 12 cents per common share, is annualized at 48 cents and gives a modest return of just 0.5%. But the key here is not high or low performance; rather, it’s the 8-year story of reliable dividend payouts and growth. Terex has increased its dividend three times in the past three years, including during the COVID period.
JPM’s Duignan sees Terex holding a solid foundation for its future growth, writing about the company and its working environment: “While residential construction in the United States has been strong and talks about an infrastructure bill like a potential positive catalyst, we believe investors may miss positive leading indicators. in the non-residential sector which is generally at least one year behind the residential cycle. As a result, we believe the stock should trade at a higher multiple given the potential for a prolonged bull cycle in its basic end market. “
It assigns an overweight (i.e. buy) rating to this construction / manufacturing stock, and its price target of $ 61 implies a 33% hike for the coming year. (To see Duignan’s palmares, Click here.)
This mid-cap industrial company recently attracted a total of 10 analyst reviews, including 7 buys and 3 holds for a moderate street buy. Terex shares are priced at $ 45.68 and have an average price target of $ 56.70, which puts the stock up 24% year over year. (See Terex market analysis on TipRanks.)
Paccar, Inc. (PCAR)
Now we’re going to change gears and move on to the transportation industry. Paccar is a premium premium truck maker – the builder behind the Kenworth, Peterbilt and DAF nameplates. These names are well known on North American highways and are synonymous with quality. Paccar builds trucks of all types, in light, medium and heavy lines, and also designs and builds advanced diesel engines and powertrains. The company backs its trucks and components, providing spare parts, information technology and financial services to support its customers.
Over the past 12 months, the company has had to deal with many headwinds: the COVID crisis, a shortage of drivers leading to a drop in demand for vehicles, supply chain disruptions putting the brakes on to the manufacturing process.
Despite these difficulties, Paccar posted a recovery in income after the “COVID trough” in 2Q20. In the first quarter of 2021, revenue was $ 5.85 billion, the highest since Q419, and the third consecutive quarterly sequential revenue gain. EPS, at $ 1.35, showed a similar trend – and topped estimates by 7 cents. The management of the company described the quarterly results as “very good”.
Along with these overall results, Paccar announced new Kenworth and Peterbilt mid-duty truck lines, as well as an electric truck production line under the DAF name. The company had $ 4.65 billion in cash to support manufacturing activity.
In her review of PCAR actions, Duignan de JPM is particularly impressed by the reception of the new power line, writing: “[We] view PCAR as a high quality cyclical with a favorable competitive position and an experienced management team. Its DAF (the European brand of Paccar) has already received more than 1,000 customer orders for its new generation XF, XG and XG⁺ trucks, the fastest milestone of 1,000 orders reached in its history, allowing it to gain significant market share in the region… We believe long term risks are biased upward at current valuation. “
Looking ahead, Duignan rates PCAR stocks as overweight (buy), and his price target of $ 112 shows his confidence in a 27% rise this year.
The JPM view represents the bulls here – but this action has mixed reviews from Wall Street. The 8 registered are evenly distributed, with 4 buys and 4 takes, for a moderate buying consensus. The average price target here is $ 104.5, which suggests a 19% year-over-year increase. (See the analysis of Paccar’s shares on TipRanks.)
AGCO Company (AGCO)
We will finish our look at JPM’s industrial calls with AGCO Corporation. This company, headquartered in Duluth, Georgia, is a leading producer of agricultural equipment. AGCO’s brands include Challenger, Fendt and Massey Ferguson, and the product line ranges from tractors and combines to tillage machines and storage silos. In short, AGCO’s products allow farmers – at all scales – to work their land from the start of the planting season to the final shipment of the product.
AGCO shares have risen steadily since their trough during the peak of the corona crisis, and the stock has risen 114% in the past 12 months. While slipping from its highest stock price reached in May, AGCO is still close to its all-time high.
In the first quarter of this year, AGCO exceeded market expectations in terms of revenues and profits. Revenue was expected at $ 2.215 billion, but reached $ 2.38 billion, beating the forecast by 7.4%. The first quarter figure increased 23% year-on-year. On EPS, the company reported a profit of $ 1.99; the street had planned $ 1.11. First-quarter profits were also more than double their value a year ago.
The good quarter was supported by sales gains in all segments. Growth in North America was modest at 10%, but was offset in South America, which saw its sales climb 56% yoy, in Europe, which saw its sales increase 41% in GA, and in the Asia / Pacific region, where sales increased 83%.
This is the third stock that Duignan is improving, and in her comments, she is careful to note the strength of the company’s European and South American activities, writing: “Europe is the largest regional exhibition of AGCO (67% of the PO in the 2020 segment); We expect earnings to continue to recover rapidly in 2021 in a more normal production environment (the EU hardest hit by COVID-19 lockdowns in 2020), supported by decent fundamentals and improving sentiment. Its business in South America is expected to benefit from improving farmers’ economies, which will drive demand for large-scale equipment, including grain storage and precision planting. “
Duignan’s comments confirm his new overweight rating here, and his price target of $ 164 implies a 27% hike over the next 12 months.
Of the stocks we looked at, this one carries a strong buy analyst consensus rating, based on 8 reviews with a 7: 1 buy versus hold split. AGCO is currently selling at $ 126.31 with an average price target of $ 162.88; this gives stocks a 29% upside prospect. (See AGCO’s share analysis on TipRanks.)
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Disclaimer: The opinions expressed in this article are solely those of the analysts presented. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
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