The focus on boosting domestic manufacturing, a surge in economic activity, rising infrastructure expenditure, greater use of technology, supportive government initiatives, and growing demand for tools and equipment are all expected to contribute to the industrial sector's growth.
Amid this backdrop, it could be wise to buy fundamentally strong industrial stocks EnerSys (ENS), Konica Minolta, Inc. (KNCAY), and Clearwater Paper Corporation (CLW).
Before diving deeper into the fundamentals of these stocks, let’s discuss what’s shaping the industry’s prospects.
The industrial sector has been affected by macroeconomic issues as industrial production fell 0.6% sequentially in October. Similarly, manufacturing output decreased by 0.7%, mainly because of a 10% decrease in motor vehicles and auto parts production due to UAW strikes at key automakers.
Nonetheless, October's mining output increased 2.2% annually and 0.4% sequentially. Mining's operating rate rose by 0.5 percentage points to 94.3%, 7.9 percentage points more than its long-term average.
Despite the near-term challenges, the industrial sector looks well-positioned for long-term growth due to the adoption of technologies. Increasing adoption of automation, robotization, artificial intelligence (AI), big data, the Internet of Things (IoT), cloud computing, and machine learning are helping manufacturers streamline production, reduce costs, improve quality, improve decision-making, and bolster safety.
The global Industry 4.0 market size is projected to grow at a CAGR of 20.6% to reach $165.50 billion by 2026. Additionally, favorable government initiatives such as the $1.2 trillion Bipartisan Infrastructure Bill, later signed into law called the Infrastructure Investment and Jobs Act, aim to provide $550 billion of new federal spending in America’s infrastructure.
The new law will boost the demand for metals, machinery, and other necessary industrial products. The global industrial machinery market is anticipated to grow at a CAGR of 5.3% to reach $1.04 trillion by 2032.
Furthermore, thanks to the boom in online shopping, the demand for packaging paper and board has grown considerably. The global demand for containerboard will reach 226 million tons by 2032. Investors’ interest in industrial stocks is evident from the Vanguard Industrials Index Fund’s (VIS) 20% returns year-to-date.
With these favorable trends in mind, let’s delve into the fundamentals of the above-mentioned industrial stocks.
EnerSys (ENS)
ENS provides various stored energy solutions for industrial applications worldwide. It operates in three segments: Energy Systems, Motive Power, and Specialty. The company offers uninterruptible power systems applications for computer and computer-controlled systems, telecommunications systems, switchgear and electrical control systems, large-scale energy storage, integrated power solutions, and services.
On November 8, 2023, ENS announced that Landmark Dividend LLC placed an order for 50 units of ENS’ proprietary and revolutionary energy storage and management systems, which enable energy optimization through various applications, including demand charge reduction, utility backup power, and dynamic fast charging for EVs.
ENS’ President & CEO David M. Shaffer said, “This important order demonstrates our consistent execution on our growth strategy and is just the beginning of the full commercialization of FC&S which we previewed during our recent investor day.”
“We are well-positioned to benefit from an enormous market opportunity as the need for energy optimization increases and access to resilient and reliable power is critical to enable the growing demand for public DC fast charging stations,” he added.
In terms of forward non-GAAP P/E, ENS’ 13.17x is 30.7% lower than the 18.99x industry average. Its 9.36x forward EV/EBITDA is 19.6% lower than the 11.63x industry average. Likewise, its 11.60x forward EV/EBIT is 29.4% lower than the 16.44x industry average.
ENS’ net sales for the second quarter ended October 1, 2023, increased 0.2% year-over-year to $901 million. Its adjusted EBITDA rose 35.8% over the prior-year quarter to $116.40 million. The company’s adjusted operating earnings increased 58.3% year-over-year to $103.50 million.
Also, its adjusted net earnings rose 67.8% year-over-year to $76.50 million. Its adjusted EPS came in at $1.84, representing an increase of 65.8% year-over-year.
Analysts expect ENS’ EPS for the quarter ending December 31, 2023, to increase 45.5% year-over-year to $1.85. Its revenue for the quarter ending June 30, 2024, to increase 2.4% year-over-year to $930 million. It surpassed the consensus EPS estimates in each of the trailing four quarters. The stock has gained 34.8% year-to-date to close the last trading session at $99.52.
ENS’ POWR Ratings reflect its solid prospects. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #16 out of 91 stocks in the B-rated Industrial – Equipment industry. It has a B grade for Growth, Value, and Quality. Click here to see the other ratings of ENS for Momentum, Stability, and Sentiment.
Konica Minolta, Inc. (KNCAY)
Based in Tokyo, Japan, KNCAY engages in the digital workplace, professional print, healthcare, and industrial sectors. It develops, manufactures, and sells multifunctional peripherals, digital printing systems, and related consumables and offers IT and printing solutions and services.
On October 26, 2023, KNCAY announced an agreement to transfer 80% of the shares of two of its Chinese manufacturing subsidiaries to Guangzhou Luxvisions Innovation Technology Limited. Through this strategic business alliance, KNCAY will optimize the structure of its business unit in the growing mobility field.
In terms of forward EV/Sales, KNCAY’s 0.55x is 81.2% lower than the 2.91x industry average. Its 7.524x forward EV/EBITDA is 51.7% lower than the 15.59x industry average. Likewise, its 0.19x forward Price/Sales is 93.6% lower than the 2.95x industry average.
For the fiscal second quarter ended September 30, 2023, KNCAY’s revenue rose 1.2% year-over-year to ¥286.36 billion ($2.02 billion). Its gross profit rose 3.4% year-over-year to ¥125.34 billion ($883.76 million). The company’s operating profit came in at ¥5.19 billion ($36.59 million). In addition, its profit for the period and EPS came in at ¥1.25 billion ($8.81 million) and ¥2.17, respectively.
Street expects KNCAY’s revenue for March 2024 is expected to increase 130.9% year-over-year to $7.93 billion. Over the past month, the stock has gained 0.1% to close the last trading session at $5.99.
KNCAY’s POWR Ratings reflect this positive outlook. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
Within the Industrial – Equipment industry, it is ranked #12. It has an A grade for Value and a B for Momentum, Stability, and Quality. To see the other ratings of KNCAY for Growth and Sentiment, click here.
Clearwater Paper Corporation (CLW)
CLW is a manufacturer and supplier of bleached paperboard and consumer and parent roll tissue operating through two segments: Pulp and Paperboard and Consumer Products.
In terms of forward non-GAAP P/E, CLW’s 5.15x is 68.2% lower than the 16.22x industry average. Its 3.74x forward EV/EBITDA is 55.1% lower than the 8.33x industry average. Likewise, its 0.29x forward Price/Sales is 75.9% lower than the 1.20x industry average.
CLW’s net sales for the third quarter ended September 30, 2023, came in at $519.90 million. Its adjusted EBITDA rose 4.3% over the prior-year quarter to $80.60 million. The company’s adjusted income increased 18.6% year-over-year to $37 million. Its adjusted income per share came in at $2.19, representing an increase of 19.7% year-over-year. In addition, its free cash flow rose significantly year-over-year to $74 million.
For fiscal 2023, CLW’s EPS is expected to increase 92.6% year-over-year to $6.99. Over the past six months, the stock has gained 16.7% to close the last trading session at $36.01.
CLW’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It is ranked first out of 10 stocks in the B-rated Industrial – Paper industry. It has a B grade for Growth, Value, Stability, Sentiment, and Quality. Click here to see CLW’s rating for Momentum.
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ENS shares were trading at $99.59 per share on Friday morning, up $0.07 (+0.07%). Year-to-date, ENS has gained 36.03%, versus a 24.31% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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