On Sep 11, 2014, we issued an updated research report on Lincoln Electric Holdings Inc. (LECO). The manufacturer and reseller of welding and cutting products will benefit from its long-term strategies including investments and acquisitions. However, fluctuation in foreign exchange rates and concern regarding the nonresidential market remain headwinds.
Notably, Lincoln Electric entered into a new licensing agreement with NanoSteel in Jul 2014, which will assist in the growth of its alloy portfolio. The investment will also help in Lincoln Electric’s internal development. Further, the company enhanced its product portfolio in many key high-growth areas through acquisition. Lincoln acquired an ownership interest in Burlington Automation Corporation in Nov 2013 and also entered into a definitive agreement to acquire Robolution GmbH to expand its geographic reach in the automation business.
The company expects capital spending to be around $70–$80 million for 2014, primarily associated with significant reinvestment projects in both North and South American businesses. In North America, Lincoln Electric continues to drive sales force efficiency with new CRM tools, hardware and enhanced training.
Lincoln Electric has outperformed the Zacks Consensus Estimate in all of the past four trailing quarters with an average positive surprise of 11.06%. Additionally, Lincoln Electric’s estimates have witnessed positive revisions for the current quarter and the current year over the past 60 days. The stock has also started moving higher lately, adding 4.5% over the past four weeks.
On the other hand, Lincoln Electric shifted Venezuelan exchange rate from 6.3 bolivars to the dollar to the SICAD I rate of 10.7 in Mar, 2014. If the company were to convert bolivars at a rate other than the SICAD I rate in the future or in case exchange rates are revised, it will hurt earnings. Further, the company remains cautious about the operating environment in Venezuela due to persistent economic uncertainty.
In addition, the Dodge Momentum Index, a monthly measure for nonresidential building projects in planning, fell 4.4% in Jul to 121.4. The company also continues to experience persistent weakness in mining in Australia.
Lincoln Electric currently carries a Zacks Rank #2 (Buy).
Other Stocks to Consider
Other players that are worth considering in the sector are ACCO Brands Corporation (ACCO), AO Smith Corp. (AOS) and ARC Document Solutions, Inc. (ARC). All these stocks carry a Zacks Rank #2.
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