The industrial machinery industry, which bore the brunt of COVID-19-pandemic-led mandatory closures, is regaining momentum on the back of favorable government policies and the resumption in economic activities. Furthermore, if the Biden Administration’s $3.5 trillion reconciliation package, which is tied to the Senate-approved $1.2 trillion infrastructure bill, is passed, the industry should benefit significantly. Specifically, we think quality industrial machinery stocks Cummins Inc. (CMI), Nordson (NDSN), and Crane Co. (CR) are among companies that are well-positioned to capitalize on the industry tailwinds. Let’s discuss.
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The industrial machinery sector, which had been severely impacted by global lockdown measures and supply chain constraints, has been making a strong comeback over the past few months. A resumption in economic activities, rapid vaccination programs, and supportive government policies have aided the sector’s rebound. The global industrial machinery market is expected to reach $835.34 billion by 2026, registering a 3.6% CAGR.
Following the Senate’s passage of a $1.2 trilling infrastructure bill last month, Democrats are pushing a $3.5 trillion budget reconciliation bill. House Speaker Nancy Pelosi has insisted that the infrastructure bill would not be voted on until the Senate passed the $3.5 trillion spending plan. If this bill is passed, the overall spending on infrastructure should propel the growth of the industrial machinery market.
So, we think it could be wise to bet on industrial machinery stocks Cummins Inc. (CMI), Nordson Corporation (NDSN), and Crane Co. (CR). These stocks are well-positioned to benefit from the approval of the infrastructure bill and deliver solid returns in the near term.
Click here to check out our Industrial Sector Report for 2021
Cummins Inc. (CMI)
CMI is a Columbus, Ind.-based global manufacturer of diesel and natural gas engines, electric and hybrid powertrains, and related components. Engine; Distribution; Components; Power Systems; and New Power are the company’s five segments. In addition, it offers filtration, after-treatment, controls systems, air handling systems, automated transmissions, and electric power generation systems.
Last month, CMI formed a strategic partnership with Daimler Truck AG for medium-duty engines. Under the terms of the agreement, CMI will invest in the further development of a medium-duty engine platform for Daimler Trucks & Buses and its global production and delivery beginning in the second half of the decade.
During the second quarter ended July 4, 2021, CMI’s revenue increased 58.6% year-over-year to $6.11 billion. The company’s operating income increased 118.8% year-over-year to $735 million over this period. Its net income increased 117.4% year-over-year to $600 million, while its EPS grew 120.4% from the prior-year quarter to $4.10.
A $16.24consensus EPS estimate for the current year represents a 34.7% improvement year-over-year. The $24.38 billion consensus revenue estimate for its fiscal year 2021 represents a 23% increase from the same period last year. The stock has gained 12.6% in price over the past year and 6.3% over the past nine months.
CMI’s POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
CMI is also rated an A grade for Quality and a B for Value. Within the A-rated Industrial – Machinery industry, it is ranked #30 of 83 stocks.
To see additional POWR Ratings for Momentum, Stability, Sentiment, and Growth for CMI, click here.
Nordson Corporation (NDSN)
NDSN designs, manufactures, and markets adhesives, coatings, polymers, sealants, biomaterial, other fluids dispense, and control systems internationally. The Westlake, Ohio, company operates through Industrial Precision Solutions (IPS) and Advanced Technology Solutions (ATS).
Last month, NDSN agreed to acquire NDC Technologies’ business from Spectris plc. NDC is a leading global provider of precision measurement solutions for in-line manufacturing process control. Through this acquisition, NDSN intends to expand its test and inspection platform into new end markets and adjacent technologies.
NDSN’s sales increased 20.2% year-over-year to $646.86 million in the second quarter, ended July 31, 2021. Its operating profit grew 68% from its year-ago value to $188.28 million. The company’s net income surged 63.5% from the prior-year quarter to $142.18 million, while its EPS increased 62.4% year-over-year to $2.42 over this period.
The company’s EPS is expected to grow 45.1% year-over-year to $7.95 in its fiscal year 2021. In addition, its revenue is expected to increase 29.3% in the current year. The stock has gained 26.3% in price over the past year and 20% year-to-date.
NDSN’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our POWR Ratings system. NDSN also has an A grade for Sentiment and Quality, and a B for Growth. The stock is ranked #4 of 83 stocks in the Industrial – Machinery industry.
Beyond the POWR Ratings grades we’ve just highlighted, one can see the NDSN ratings for Stability, Value, and Momentum.
Crane Co. (CR)
CR manufactures and sells engineered industrial products in the United States, Canada, the United Kingdom, Continental Europe, and internationally. Fluid Handling; Payment & Merchandising Technologies; Aerospace & Electronics; and Engineered Materials are the company’s four operational segments. CR is based in Stamford, Conn.
For the second quarter, ended June 30, 2021, CR’s net sales increased 23.6% year-over-year to $796.4 million. Its operating income grew 377% year-over-year to $136.9 million over this period. The company’s net income surged 834.5% from its year-ago value to $138.3 million, while its EPS increased 832% from the prior-year quarter to $2.33.
A $3.11 billion consensus revenue estimate for the current year represents a 5.6% increase from the same period last year. CR’s EPS is expected to increase 59.4% year-over-year to $6.12 in its fiscal year 2021. Also, the stock has returned 74.1% over the past year and 23.3% over the past nine months.
CR’s POWR Ratings reflect this promising outlook. The company has an overall A rating, which translates to Strong Buy in our proprietary rating system. CR is also rated an A for Sentiment, and a B for Value and Quality. Within the Industrial – Machinery industry, it is ranked #2 of 83 stocks.
Click here to see additional POWR Ratings for Growth, Momentum, and Stability for CR.
Click here to check out our Industrial Sector Report for 2021
CMI shares were unchanged in premarket trading Tuesday. Year-to-date, CMI has gained 5.53%, versus a 20.65% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
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