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Zacks Industry Outlook Highlights Caterpillar, Komatsu, Terex, H&E Equipment Services and Manitowoc

For Immediate Release

Chicago, IL – April 6, 2023 – Today, Zacks Equity Research discusses Caterpillar Inc. CAT, Komatsu KMTUY, Terex Corp. TEX, H&E Equipment Services, Inc. HEES and Manitowoc MTW.

Industry: Construction & Mining

Link: https://www.zacks.com/commentary/2074757/5-construction-mining-equipment-stocks-to-ride-on-demand-trends

The Zacks Manufacturing - Construction and Mining industry is poised to gain on solid demand from the mining sector, fueled by the energy-transition trend and stepped-up infrastructure investment in the United States. Indications of easing supply-chain issues increase optimism.

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Players like Caterpillar Inc., Komatsu, Terex Corp., H&E Equipment Services, Inc. and Manitowoc are likely to ride on these demand trends. They are anticipated to benefit from their efforts to bring technologically advanced products to the market. They have also been focusing on improving productivity and efficiency to counter cost pressures.

About the Industry

The Zacks Manufacturing - Construction and Mining industry comprises companies that manufacture and sell construction, mining and utility equipment. They support customers using machinery in the construction of commercial, institutional and residential buildings, and infrastructure projects.

Their equipment is also utilized in underground mining, drilling and mineral processing, and surface mining to extract and haul copper, iron ore, coal, oil sands, aggregates, gold, and other minerals and ores. Their products are varied, including loaders, pavers, dozers, excavators, concrete mixer trucks, crushing, pulverizing and screening equipment, tractors, and cranes. Industry participants support oil and gas, power generation, marine, rail, and industrial applications through their reciprocating engines, generator sets, gas turbines and turbine-related services.

4 Trends Shaping the Future of Manufacturing - Construction and Mining Industry

Easing Supply-Chain Disruptions Raise Hope: Per the Federal Reserve, industrial production was flat in February 2023, while manufacturing output inched up 0.1%. Overall, industrial production declined 0.2% over the 12 months ended February 2023. In March, the Institute for Supply Management’s manufacturing index was 46.3%, contracting for the fifth month in a row. The average for the past 12 months (ended February 2023) is 50.9.

Amid the ongoing uncertainty in the global economy and persisting inflationary trends, customers have been curbing their spending. The manufacturing sector has also been bearing the brunt of supply-chain issues. On a positive note, some industry players have recently noted that supply-chain issues are easing and lead times are improving.

The delivery performance of suppliers to manufacturing organizations was reported to be faster for the sixth consecutive month in February. The Supplier Deliveries Index registered a growth of 44.8% in March, indicating the fastest supplier delivery performance since March 2009. Once the situation normalizes, strong demand in the diverse end markets will drive the industry’s growth.

Demand Strength in Mining & Construction to Drive the Industry: The intensifying global focus on shifting from fossil fuels to zero emissions will require a large number of commodities, which, in turn, will support demand for mining equipment in the years to come. The U.S. government's plans to increase investment in infrastructure construction, particularly in critical subsectors, such as transportation, water and sewerage, and telecommunications, should support demand in the coming years.

Higher Pricing, Cost Cuts to Boost Margins: The industry is facing input cost inflation, and transport and logistic costs. Industry players are focusing on pricing actions and efforts to improve productivity and efficiency. They are constantly implementing cost-reduction actions, which are likely to help sustain margins in this scenario. The companies are focused on streamlining their operations and realigning around high-growth key markets or customer segments to enhance their performances.

Investment in Digital Initiatives a Key Catalyst: The industry participants are investing in digital initiatives like AI, cloud computing, advanced analytics and robotics. Digital transformation aids organizations in boosting productivity and increasing efficiency, reliability and safety, thereby enriching customer satisfaction. With the pressing need to cut carbon emissions, companies worldwide are relying more on autonomous machinery. Thus, the players in the Manufacturing - Construction and Mining industry are stepping up their research and technological capabilities to bring products into the market equipped with the latest technology.

Zacks Industry Rank Indicates Upbeat Prospects

The group’s Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates bright prospects in the near term. The Zacks Manufacturing - Construction and Mining industry, a six-stock group within the broader Zacks Industrial Products sector, currently carries a Zacks Industry Rank #6, which places it at the top 2% of 250 Zacks industries.

Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. Over the past year, the industry’s earnings estimates for the current year have been revised upward by 5%.

Before we present a few stocks that you may want to consider for your portfolio, let’s look at the industry’s recent stock-market performance and the valuation picture.

Industry Versus Broader Market

The Manufacturing - Construction and Mining industry has outperformed its sector and the Zacks S&P 500 composite over the past year. Over this period, the industry has gained 6.7% compared with the sector’s rise of 0.1%. The Zacks S&P 500 composite has fallen 8.8% in the same time frame.

Industry's Current Valuation

On the basis of the forward 12-month EV/EBITDA ratio, a commonly used multiple for valuing Manufacturing - Construction and Mining companies, we see that the industry is currently trading at 10.98 compared with the S&P 500’s 10.26 and the Industrial Products sector’s trailing 12-month EV/EBITDA of 15.34.

Over the last five years, the industry has traded as high as 14.83 and as low as 7.04, with the median being at 10.19.

5 Manufacturing - Construction & Mining Stocks to Keep a Close Eye On

Komatsu: The company has been witnessing strong demand for construction, mining and utility equipment over the past few quarters. This has been instrumental in the 32% climb in its share price over the past six months. In North America, demand should remain steady in residential and non-residential, as well as road and traffic infrastructure.

For industrial machinery, sales are likely to be supported by strong sales of the Excimer laser-related business for the semiconductor manufacturing industry. Its efforts to provide zero-emission solutions for its global customers will likely be a growth driver. KMTUY will also benefit from its cost-reduction efforts. In July 2022, KMTUY acquired Mine Site Technologies Pty Ltd , a provider of operational optimization platforms for underground mining that leverage communication devices and position tracking systems.

With this buyout, Komatsu aims to enhance the speed at which it offers advanced technology solutions, including the automation and teleoperation of mining equipment underground. Komatsu is working on expanding offerings for underground hard rock mining, and developing safe, highly productive, smart and clean workplaces of the future, together with customers, by digitalizing workplaces around the world with products that offer automation and autonomous operation of equipment, as well as solutions.

Headquartered in Tokyo, Japan, Komatsu manufactures and sells construction, mining and utility equipment, and forest and industrial machinery worldwide. The Zacks Consensus Estimate for the company’s fiscal 2023 earnings has been revised upward by 3% over the past 90 days. The consensus estimate indicates 14.6% year-over-year growth. The company has a trailing four-quarter earnings surprise of 30%, on average. KMTUY has an estimated long-term earnings growth rate of 11%. It currently sports a Zacks Rank #1 (Strong Buy).

You can see the complete list of today’s Zacks #1 Rank stocks here.

Terex: The company’s backlog has been on an uptrend over the past nine quarters and was at $4.1 billion at the end of the fourth quarter of 2022. From the prior-year levels, the backlog improved 22%, aided by improvement in both segments. This, along with solid demand, pricing and cost-saving actions, positions the company well for improved results.

TEX is progressing well on its “Execute, Innovate, Grow" strategy that should drive growth. In sync with this, it is investing in innovative products, digital innovation, expansion of manufacturing facilities and acquisitions. Terex is focused on aligning production and cost structure across its segments in response to the customer demand environment, while aggressively managing costs and working capital. Shares of TEX have gained 37.1% over the past six months.

Norwalk, CT-based Terex manufactures and sells aerial work platforms and materials processing machinery worldwide. The Zacks Consensus Estimate for 2023 earnings indicates year-over-year growth of 13.2%. Earnings estimates have moved north 1.9% over the past 90 days. TEX has a trailing four-quarter earnings surprise of 28.3%, on average, and an estimated long-term earnings growth rate of 18.8%. The company carries a Zacks Rank #2 (Buy) at present.

Manitowoc: Manitowoc has been witnessing high customer demand across the board this year. The backlog at the end of 2022 was $1,056 million, up 4.5% from the 2021-end levels. Backed by this, the company’s share price has gained 74.8% in the past six months. The company’s innovation pipeline remains robust and its aftermarket business continues to perform well. It remains focused on improving this crucial part of its business.

In sync with this, Manitowoc acquired the crane business of H&E Equipment Services, which will expand its ability to provide rentals, new sales, used sales, aftermarket parts, and service to a variety of end-market customers. The company is committed to cash preservation and balance sheet management, while funding critical programs for future growth.

Given that the tower crane market in China is the largest in the world, Manitowoc is scaling up its China tower crane business. It is also expanding its tower crane rental fleet in Europe. These strategic initiatives, along with the company’s pursuit of acquisition opportunities to accelerate product development programs in its all-terrain product line, will help drive long-term growth.

The Zacks Consensus Estimate for this year’s earnings has gone up 67% in the past 90 days. The company has a trailing four-quarter earnings surprise of 38.8%, on average. This Milwaukee, WI-based company currently sports a Zacks Rank #1.

Caterpillar: CAT’s revenues and earnings have been growing year over year for eight straight quarters, owing to its cost-saving actions, strong end-market demand and pricing actions. Its backlog was a solid $30.4 billion at the end of 2022, which will support its top line in the upcoming quarters. CAT is anticipated to gain strength in residential construction and non-residential construction in the United States.

Miners are bringing radical changes to mining operations to increase productivity, reduce costs and improve frontline safety and are, thus, increasingly relying on autonomous systems. To capitalize on this trend. Caterpillar continues to invest in enhancing its digital capabilities, connecting assets and job sites, and developing the next generation of more productive and efficient products. The stock has gained 21.6% in the past six months, aided by these tailwinds.

Known for its iconic yellow machines, Caterpillar is the largest global construction and mining equipment manufacturer. The Zacks Consensus Estimate for CAT’s 2023 earnings indicates year-over-year growth of 13%. Earnings estimates have moved up 2% over the past 90 days. CAT has a trailing four-quarter earnings surprise of 9%, on average. CAT has an estimated long-term earnings growth rate of 12%. The company currently carries a Zacks Rank #3 (Hold).

H&E Equipment Services: The company recently reported robust fourth-quarter 2022 results, courtesy of solid fleet utilization, continued gains in equipment pricing, fleet and branch expansion. The inclusion of operations from One Source Equipment Rentals, Inc., following the closing of its acquisition on Oct 1, 2022, also contributed to the results.

Physical fleet utilization remained at a healthy level, averaging 72.0% at the end of the fourth quarter. The company’s fleet original equipment costs were a record $2.4 billion at the quarter end. The company is expected to benefit from the favorable demand trend in the equipment rental industry.

Strong project backlogs and an increase in spending, aided by federally funded programs, particularly in the non-residential and industrial end markets, will support its top-line growth. Owing to the rising interest rates and ongoing delays in equipment deliverability, customers are now shifting toward renting equipment rather than owning them, which bodes well for HEES.

The company signed an agreement in December 2022 to sell its Komatsu earthmoving distribution business, which, combined with the sale of its crane business completed in 2021, makes it a pure-play rental business. HEES can focus on growing in the high-margin equipment rental business. The company’s shares have gained 34% over the past six months.

Baton Rouge, LA-based H&E Equipment Services is one of the largest integrated equipment services companies in the United States. The Zacks Consensus Estimate for fiscal 2023 earnings indicates year-over-year growth of 7.8%. The consensus mark has moved up 4% over the past 90 days. HEES has a trailing four-quarter earnings surprise of 41.7%, on average. H&E Equipment Services has an estimated long-term earnings growth rate of 10%. The company currently carries a Zacks Rank of 3.

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The Manitowoc Company, Inc. (MTW) : Free Stock Analysis Report

Caterpillar Inc. (CAT) : Free Stock Analysis Report

Terex Corporation (TEX) : Free Stock Analysis Report

Komatsu Ltd. (KMTUY) : Free Stock Analysis Report

H&E Equipment Services, Inc. (HEES) : Free Stock Analysis Report

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