On May 25, we issued an updated research report on Lincoln Electric Holdings, Inc. LECO. The company is poised to gain from improving end markets, global pricing actions and acquisitions. However, raw material price inflation is expected to dent its performance in the near future.
Let’s illustrate the factors in detail.
Improving End Markets to Drive Growth
Lincoln Electric achieved solid growth momentum in first-quarter 2018 as most end markets continued to expand, including the company’s two largest sectors — heavy industries and general fabrication — which grew at a double-digit pace. Further, organic sales increased across all reportable segments, led by the Americas Welding and The Harris Products Group. The company also achieved double-digit percent growth from U.S. exports and the global automation portfolio.
The company expects to benefit from improved end-sector demand. By product area, consumable organic sales increased at a double-digit rate and equipment increased at mid-to-high single digit rate. Lincoln Electric continues to expect mid-to-high single digit percent organic sales growth in 2018. Further, the company continues to invest in portfolio solutions to drive growth.
Pricing Actions to Offset Inflationary Pressures
Lincoln Electric remains confident that its global pricing actions and productivity initiatives will offset inflationary pressures. Pricing in the welding business during the first quarter in the Americas business was up 4.6% and International business was up 5.4%, in line with the market. The company will continue to aggressively manage the business against inflationary headwinds by implying more pricing actions in second-quarter 2018 on a global basis.
Acquisitions to Fuel Growth
In the first quarter, Lincoln Electric acquired a small technology company which will support its fifth generation of software-based IoT solutions for well processed control and monitoring. The company also completed a small bolt-on acquisition that supports hardfacing solutions and services in the Asia Pacific region. It is also well ahead of plan on the Air Liquide Welding integration activities, as the team continues to frame the business into a more efficient and successful enterprise in the region.
Raw Material Price Inflation to Impede Near-Term Margins
Raw material inflation will remain a headwind in 2018. Even though the company continues to announce new pricing actions, incremental margins could be choppy from quarter to quarter due to the timing of its response.
Share Price Performance
Lincoln Electric’s shares have underperformed the industry with respect to price performance over the past year. The stock has lost around 0.3%, while the industry recorded growth of 4.8% during the same time frame.
Zacks Rank & Stocks to Consider
Lincoln Electric currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the same sector are Axon Enterprise, Inc AAXN, Applied Industrial Technologies, Inc. AIT and Sandvik AB SDVKY. While Axon Enterprise and Applied Industrial Technologies sport a Zacks Rank #1 (Strong Buy), Sandvik AB carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Axon Enterprise has a long-term earnings growth rate of 13.3%. The stock has rallied 153% in a year’s time.
Applied Industrial Technologies has a long-term earnings growth rate of 17.4%. The company’s shares have gained 12% during the past year.
Sandvik AB has a long-term earnings growth rate of 12.2%. Its shares have been up 16% over the past year.
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