On Jan 22, 2015, we issued an updated research report on Lincoln Electric Holdings Inc. (LECO). The manufacturer and reseller of welding and cutting products will benefit from acquisitions, further share repurchases and dividends. In addition, its rationalization plan to better align the cost structure will also drive growth.
Lincoln Electric continues to undertake initiatives that will ensure improved returns through acquisitions. The company’s prior acquisitions have considerably enhanced its product portfolio in many key high-growth areas. In 2014, Lincoln Electric acquired Easom Automation Systems, Inc. in order to strengthen its position in automated welding and cutting.
Easom’s innovative solutions, patents and techniques will help Lincoln Electric to improve customers’ operational efficiency and increase profitability. The company continues to search for attractive acquisition opportunities that will help in driving inorganic growth.
Notably, Lincoln Electric initiated a rationalization plan within the Europe Welding segment in 2014. The plan includes headcount restructuring to better align the cost structure. Lincoln Electric’s European business witnessed improved performance in 3 out of the last 4 quarters.
The company is also introducing some new products and solutions in the European market. Though concerns regarding geopolitical issues in Europe persist, the company remains optimistic about long-term improvements in the business and expects consistent organic growth over the next 2 to 3 quarters.
The company returned approximately $138 million to its shareholders in the third quarter of 2014, $18 million in dividends and $130 million by repurchasing 1.9 million shares. Lincoln Electric increased its 2014 share repurchase target by 20% to $300 million, which compares with its prior target of $250 million. Further share repurchases will provide support to the stock. The company also raised its quarterly dividend by 26% to $0.29 per share from $0.23.
Although Lincoln Electric did not provide any specific guidance for 2014, the company is expected to benefit from improving end market trends in the general fabrication and structural sectors. Demand for innovative solutions combined with benefits from strategic initiatives and accelerated returns will also enhance the company’s performance.
Lincoln Electric currently carries a Zacks Rank #3 (Hold).
Other Stocks to Consider
Better-ranked stocks in the sector include Abengoa SA (ABGB), Adept Technology Inc. (ADEP) and Belden Inc. (BDC). All these stocks carry a Zacks Rank #1 (Strong Buy).
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