On Dec 2, we maintained our Neutral recommendation on
Lincoln Electric Holdings Inc.
). While the company should benefit from its acquisition strategy
and introduction of new products, challenges remain in the form
of economic uncertainty and continuing softness in the
construction and related machinery markets.
Why the Reiteration?
Lincoln Electric, on Oct 31, reported third-quarter 2013 adjusted
earnings of 86 cents per share, up 8% year over year. The results
also beat the Zacks Consensus Estimate of 84 cents. Despite a
fall in revenues, continued focus on cost reduction and
initiatives to enhance profitability drove the results.
Total revenue dropped 1% year over year to $692 million, missing
the Zacks Consensus Estimate of $705 million.
Gross margin expanded 300 basis points (bps) year over year to
33.6% in the quarter aided by better sales mix, an improved price
cost relationship and operational improvements. Adjusted
operating margin inflated 150 bps to a record 14.7%.
In November, Lincoln Electric announced the acquisition of an
ownership interest in Burlington Automation Corporation and
entered into a definitive agreement to acquire Robolution GmbH.
These acquisitions will help the company enhance its product
portfolio in many key high-growth areas.
In addition, Lincoln Electric has maintained its product
leadership by investing heavily. Its steady pipeline of products
is a key contributor to its Vision 2020 goals of at least 10%
compound annual growth and 15% return on invested capital over
the 10-year period starting 2011. The company has completed two
years of the plan and is well ahead of the run rate required to
achieve the goals.
However, Lincoln Electric did not provide any specific guidance
for 2013 or 2014 but hinted that top-line performance will remain
sluggish, given its end-market exposure, present economic policy
uncertainty and global growth forecast.
The heavy fabrication sector, which includes earthmoving, mining
and agricultural equipment; as well as the shipbuilding sector,
remain challenged. The company has been facing persistent
weakness in Australia and China and any near-term improvement
Other Stocks to Consider
Currently, Lincoln Electric has a Zacks Rank #2 (Buy). Other
players that are worth considering in the sector include
DXP Enterprises, Inc.
). While Xylem has a Zacks Rank #1 (Strong Buy), DXP Enterprises
and Graham Corp. carry the same Zacks Rank as Lincoln
DXP ENTERPRISES (DXPE): Free Stock Analysis
GRAHAM CORP (GHM): Free Stock Analysis Report
LINCOLN ELECTRC (LECO): Free Stock Analysis
XYLEM INC (XYL): Free Stock Analysis Report
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