Industrial machinery companies have been lately dealing with adverse impacts of trade tiffs between the United States and other nations as the former choose to implement import tariffs on an array of products. Few other headwinds, including inflation, shortage of skilled workers, higher freight charges and others, have also been hurting these industrial stocks.
Despite these setbacks, many industrial stocks appear promising. Strengthening housing market, lower taxes on account of implementation of the U.S. Tax Cuts and Jobs Act, investments made to innovate, infrastructural developments and solid manufacturing activities are currently favoring companies that work for general industries.
One such stock is Barnes Group, Inc. B. This Bristol, CT-based company manufactures products for customers in the industrial and aerospace end markets. The stock currently has a Zacks Rank #2 (Buy) and a favorable VGM Score of B.
At present, the industry to which Barnes belongs is positioned in the top 42% of more than 250 Zacks industries. Per our research, the top 50% of the Zacks-ranked industries outperformed the bottom 50% by a factor of more than 2 to 1. Year to date, Barnes has gained 1.3%, outperforming the industry’s 1% growth but in-line with the Zacks Industrial Products sector’s 1.3% increase.
Below we discussed why Barnes is currently a worthy investment option.
Impressive Earnings Outlook: Barnes delivered better-than-expected results in three of last four quarters while it lagged estimates in one. Notably, it has an average four-quarter positive earnings surprise of 7.04%.
For 2019, the company’s earnings estimates have been revised upwards by four brokerage firms, indicating brighter prospects ahead. Currently, the Zacks Consensus Estimate for earnings is pegged at $3.23 for 2018 (results not yet released) and $3.56 for 2019, reflecting no change and growth of 2.6% from the respective 60-day-ago tally. These estimates also reflect year-over-year growth of 12.2% for 2018 and 10.2% for 2019.
Barnes Group, Inc. Price and Consensus
Barnes Group, Inc. Price and Consensus | Barnes Group, Inc. Quote
Barnes believes that healthy top-line growth and expansion in operating margins 2018. It anticipates adjusted earnings to be $3.21-$3.26 per share, reflecting year-over-year growth of 11-13%.
Revenue Growth: Barnes operates through two segments — Industrial and Aerospace. The Industrial segment’s Molding Solutions business unit is poised to gain from global expansion, demand growth for premium and hot runner molds, and focus on MRO growth. For 2018, revenues at the Industrial segment are predicted to grow in low-single digit range.
Meanwhile, high aircraft utilization, ramping of new engine programs and solid orders from original equipment manufacturers are anticipated to boost the Aerospace segment. Revenues at this segment are expected to increase in high-single digit during 2018.
In addition to the segmental strength, Barnes anticipates total sales to grow 4-5% year over year in 2018, including organic sales growth of 2-3%. While foreign currency translation is predicted to positively impact sales growth by approximately 1%, acquired assets (IGS and Gammaflux) are predicted to add 1%.
The Zacks Consensus Estimate for revenues is pegged at $1.50 billion for 2018 and $1.60 billion for 2019. The estimate for 2019 reflects year-over-year growth of 6.9%.
Acquisitions: Over time, Barnes fortified its product portfolio and leveraged business opportunities through the addition of assets. In the third quarter of 2018, acquisitions added 1% to sales growth.
In October 2018, Barnes successfully completed the acquisition of Gimatic S.r.l. Based in Italy, Gimatic is engaged in manufacturing products for industrial automation applications. This buyout will be integrated with the company’s Industrial segment. In July 2018, Barnes acquired Industrial Gas Springs Group Holdings Limited. This U.K.-based Industrial Gas Springs mainly manufactures and provides customized gas springs. The Industrial segment’s Nitrogen Gas Products business unit has been gaining traction from this buyout.
Shareholder-Friendly Moves: Barnes uses its capital for product development, capacity expansion, acquisitions and rewarding shareholders handsomely. A brief discussion on dividend payments is provided below.
In the first nine months of 2018, Barnes paid dividends, totaling $24 million, to its shareholders. This payment surpasses the previous year's tally by 8.9%. It’s worth mentioning here that the company increased its quarterly dividend rate by 14.3% to 16 cents in May 2018. The annual dividend rate is now at 64 cents.
Other Stocks to Consider
Some other top-ranked stocks in the industry are DXP Enterprises, Inc. DXPE, Flowserve Corporation FLS and Colfax Corporation CFX. While DXP Enterprises sports a Zacks Rank #1 (Strong Buy), both Flowserve and Colfax carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
For 2019, earnings estimates for the three companies have improved over the past 60 days. Further, positive earnings surprise for the last reported quarter was 17.95% for DXP Enterprises, 16.67% for Flowserve and 3.85% for Colfax.
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