Industrial production took a major hit at the beginning of the COVID-19 pandemic last year due to prolonged lockdown measures. However, businesses are increasingly resuming contact-intensive activities made possible by progress on the vaccination front. The US Industrial Production Index stood at 107.2 in January. Industrial capacity utilization has improved to 75.6% in January, up from 64.1% in April 2020.
With accelerating consumer spending owing to declining unemployment rates and governmental recovery checks, the rise in aggregate demand is contributing heavily to a rebound of the industrial sector. The U.S.’ inflation rate increased to 1.7% in February from 1.4% in January, representing the highest rate since February of 2020. The current rally by industrial stocks is evidenced by the Industrial Select Sector SPDR ETF’s (XLI) 24.7% return over the past six months, compared with the S&P 500 Index’s 18% gains.
United Parcel Service, Inc. (UPS), Deere & Company (DE), Lockheed Martin Corporation (LMT) and ABB Ltd (ABB) are companies that have prioritized building resilient supply chains, IT infrastructure, and automation technologies to maintain their production levels. We believe these developments should allow their stocks to witness strong momentum in the near-term.
United Parcel Service, Inc. (UPS)
UPS is one of the world’s largest package delivery companies. It provides an assortment of integrated logistics solutions to customers in more than 220 countries and territories. It operates through three segments: U.S. Domestic Package operations, International Package operations, and Supply Chain & Freight operations. The Company serves the global market for logistics services, which includes transportation, distribution, contract logistics, and ground freight.
In February, UPS Healthcare announced an investment in and further expansion of its capabilities in cell and gene services via Marken, a UPS company. The investment in personalized medicine should help UPS maintain Marken’s leadership position in the clinical trial logistics industry.
In late January, UPS entered an agreement to sell UPS Freight to TFI International Inc. (TFII) for $800 million. The sale should allow UPS going forward to be more focused on the core parts of business that drive the greatest value for its customers.
UPS’ total revenues have increased 21% year-over-year to $24.90 billion in the fourth quarter ended December 31, 2020. Its adjusted operating profit has risen 26% from the year-ago value to $2.87 billion, yielding an operating margin of 11.5%, up 40 basis points over the same period. And its EPS has improved 26.1% year-over-year to $2.66.
Analysts expect UPS’ revenues to grow 13.8% year-over-year to $20.53 billion in the current quarter (ending March 31, 2021). A consensus EPS estimate of $1.72 for the first quarter represents a 49.6% improvement from the year-ago value. The company has an impressive earnings surprise history; it beat the Street’s EPS estimates in three of the trailing four quarters. The stock has gained 5.6% over the past six months.
UPS’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings assesses stocks by 118 different factors, each with its own weighting.
UPS has a B grade for Stability, Quality and Sentiment also. Of the 16 stocks in the A-rated Air Freight & Shipping Services industry, the stock is ranked #8.
In total, we rate UPS on eight different levels. Beyond what we stated above, we have also given UPS grades for Momentum, Value and Growth. Get all of UPS’s ratings here.
Deere & Company (DE)
Based in Illinois, DE manufactures and distributes various industrial equipment worldwide. The company also finances sales and leases agriculture and turf, and construction and forestry equipment. It operates through three business segments: agriculture and turf, construction and forestry, and financial services.
In January, DE added four companies to its 2021 Startup Collaborator program. This will allow the company to test innovative technologies with customers and dealers absent a more formal business relationship. The year-long program helps DE deepen its interaction with startup companies whose technology could add value for its customers in the future.
Last December, DE was honored in the Robotics category of the 2021 CES Innovation Awards for the second straight year. This award recognizes DE’s outstanding product design and engineering in consumer technology products.
DE’s quarterly results were aided by outstanding performance across its business lineup and improving conditions in the farm and construction sectors. The company’s total net sales have increased 19.4% year-over-year to $9.11 billion in the first quarter, ended January 31, 2021. Its operating profit has risen 154% from its year-ago value to $1.64 billion, while its EPS has improved 136.4% to $3.90 over the same period.
Analysts expect DE’s revenues to grow 35.1% year-over-year to $10.39 billion in the current quarter (ending April 30, 2021). A consensus EPS estimate of $4.38 for the second quarter represents a 107.6% improvement from the year-ago value. The company has an impressive earnings surprise history; it beat the Street’s EPS estimates in each of the trailing four quarters. The stock has gained 71.1% over the past six months.
DE’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our ratings system. DE has a Sentiment Grade of A. The stock is ranked #46 of 88 stocks in the A-rated Industrial - Machinery industry.
Click here to see the additional POWR Ratings for DE (Value, Momentum, Stability, Quality, and Growth).
Lockheed Martin Corporation (LMT)
LMT is a global security and aerospace company that is principally engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems, products, and services. The company operates through four segments: Aeronautics, Missiles and Fire Control, Rotary and Mission Systems, and Space.
Earlier this month, Aerojet Rocketdyne’s stockholders approved LMT’s proposed acquisition of Aerojet Rocketdyne.
In January, Sikorsky, a LMT company, and Boeing (BA) released details of their advanced helicopter, named DEFIANT X, for the U.S. Army's Future Long-Range Assault Aircraft competition. The aircraft is expected to be the fastest, most maneuverable and most survivable assault helicopter of all time, capable of revolutionizing the Army's air assault capabilities.
LMT’s net sales have increased 7.3% year-over-year to $17.03 billion in the fourth quarter ended December 31, 2020. Its operating profit has risen 6.5% from the year-ago value to $2.29 billion, while its EPS has improved 20.6% to $6.38 over the same period.
Analysts expect LMT’s revenues to grow 4.9% year-over-year to $16.41 billion in the current quarter (ending March 31, 2021). A consensus EPS estimate of $6.31 for the first quarter represents a 3.8% improvement from its year-ago value. The company has an impressive earnings surprise history; it beat the Street’s EPS estimates in each of the trailing four quarters. The stock has gained 9.3% over the past year.
LMT has an overall B rating, which translates to Buy in our ratings system. LMT has a B grade for Quality, Stability and Value. It is currently ranked #6 of 68 stocks in the Air/Defense Services industry.
The stock has also been given grades for Sentiment, Momentum and Growth. Get all LMT’s ratings here.
ABB Ltd (ABB)
ABB is a leading global technology company that manufactures and sells electrification, industrial automation, and robotics and motion products. It serves primarily customers in the utilities, industry and transport, and infrastructure sectors worldwide.
In February, ABB launched the new GoFa and SWIFTI cobot families to complement YuMi and Single Arm YuMi in its collaborative robot (cobot) portfolio. These robots are stronger, faster and more capable and are expected to accelerate the company's expansion in high-growth segments, including electronics, healthcare, consumer goods, and logistics, among others, thereby meeting the growing demand for automation across multiple industries.
And in January, ABB deployed an optical sensor on a SpaceX rocket to map methane emissions from space at a 100 times higher resolution than any other sensors. This should provide valuable insights that will help governments and industries worldwide to meet their emission reduction targets to reduce negative impacts on global warming.
ABB’s revenues have increased 1.6% year-over-year to $7.18 billion in the fourth quarter ended December 31. Its orders have risen 1.7% from their year-ago value to $7.00 billion, while its operational EBITA has improved 16.2% to $825 million over the same period.
Analysts expect ABB’s revenues to rise 7.1% year-over-year to $27.93 billion in its fiscal 2021, ending December 31. A consensus EPS estimate of $1.21 for the current year represents a 23.5% improvement from the previous year. The company has an impressive earnings surprise history; it surpassed the Street’s EPS estimates in each of the trailing four quarters. The stock has gained 17.7% over the past six months.
It’s no surprise that ABB has an overall A rating, which translates to Strong Buy in our POWR Ratings system. ABB has a B grade for Quality, Sentiment, and Growth and an A for Momentum. In 88 stocks of the A-rated Industrial - Machinery industry, it is ranked #4.
Click here to see the additional POWR Ratings for ABB (Stability and Value).
The POWR Ratings assesses stocks by 118 different factors, each with its own weighting.
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UPS shares were trading at $161.79 per share on Monday afternoon, down $5.90 (-3.52%). Year-to-date, UPS has declined -3.32%, versus a 5.65% rise in the benchmark S&P 500 index during the same period.
About the Author: Rishab Dugar
Rishab is a financial journalist and investment analyst. His investment approach is to focus on quality stocks, trading at low prices, with business models that he readily understands.4 Industrial Stocks That Will Benefit from Rising Inflation appeared first on StockNews.com