Lincoln Electric Rides on Strong Markets, Welding Automation

Shutterstock photo

We issued an updated research report on Lincoln Electric Holdings Inc. LECO on Feb 20. The manufacturer and reseller of welding and cutting products is poised to gain from improving end markets, acquisitions and execution of 2020 vision and strategy. Lower tax rate due to the U.S. Tax Cuts and Jobs Act will also boost earnings.

Let's illustrate the factors in detail.

Impressive Fourth Quarter Performance

Lincoln Electric delivered adjusted earnings of $1.01 per share in fourth-quarter 2017, up 25% year over year. Earnings came ahead of the Zacks Consensus Estimate of 96 cents. Results were driven by the company's focused operational and commercial initiatives. Total revenues climbed 33% year over year to $747 million including a 20.3% benefit from acquisitions, 6.8% higher volumes, 3.2% increase in price and 2.2% from favorable foreign exchange. Sales also beat the Zacks Consensus Estimate of $698 million.

The company generated solid organic growth across all business segments, key product areas, and geographies in the fourth quarter. Throughout 2017, the company's focus on operational and commercial initiatives along with aggressive integration plan led to double-digit EPS growth, record working capital performance, strong cash flows and excellent return on invested capital.

Positive Estimate Revisions

The Zacks Consensus Estimate for both fiscal 2018 and 2019 has undergone positive revisions following the strong results. The Zacks Consensus Estimate for fiscal 2018 has gone up by 6% while the same for fiscal 2019 has moved up 4%.

The Zacks Consensus Estimate for earnings is currently pegged at $4.72 for fiscal 2018 which reflects year-over-year growth of 25%. For fiscal 2019, the Zacks Consensus Estimate for earnings is pegged at $5.24, year-over-year growth of 11%.

Lincoln Electric has long-term expected earnings per share growth of 11.5%.

Upbeat View for 2018

Lincoln Electric's end markets continue to improve. Around 95% of revenues are now exposed to end sector applications which are trending positively. The current sales trends signal accelerating global industrial demand in 2018. Consequently, the company expects mid to high-single digit percent organic sales growth in 2018. Additionally, its focus on commercializing innovative product and cost-cutting initiatives will drive growth. Earnings growth is likely to be augmented by a decrease in the company's tax rate due to the recently enacted U.S. Tax Cuts and Jobs Act.

Growth Drivers in Place

Lincoln Electric has increased investment in research and development. Further, it has acquired complementary technologies to increase the strength of existing product line and introduce new offerings such as automation to supplement core market growth. China has long-term growth potential for both traditional Lincoln welding systems and automated welding.

Lincoln Electric has been consistently investing in welding automation. Welding automation is on the growth path due to the shortage of welding labor and new, low-cost welding robots that provide productivity savings to customers. Over the past five years, the company acquired welding automation companies, for approximately $320 million. Lincoln Electric completed the acquisition of Air Liquide's France-based subsidiary, Air Liquide Welding in July 2017.

The acquisition will advance its 2020 Vision and Strategy and better position Lincoln Electric as a leader in key international markets in the long term. The Air Liquide buyout increases Lincoln Electric's European presence and provides potential sales and expense synergies. Further, the company will leverage Air Liquide's existing distribution channels to offer a broader product line. Additionally, Air Liquide has attractive brands that are not currently sold to the Lincoln Electric customer base. Cost synergies include improved procurement and facilities rationalization. The company remains on track to deliver its targeted synergies of $30 million.

Over the past three months, Lincoln Electric has recorded an average return of 2.8%, while the industry declined 2.4%.

Lincoln Electric currently carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 (Strong Buy) Rank stocks here .

Other Stocks to Consider

Some other top-ranked stocks in the same sector include H&E Equipment Services, Inc. HEES , Caterpillar Inc. CAT and Komatsu Ltd. KMTUY . While H&E Equipment Services sports a Zacks Rank #1, Astec and Komatsu carry a Zacks Rank #2.

H&E Equipment Services has a long-term earnings growth rate of 18.6%. Its shares have soared 51% in the past year.

Caterpillar has a long-term earnings growth rate of 10.3%. The company's shares have rallied 58% in last year.

Komatsu has a long-term earnings growth rate of 27%. The stock has surged 47% in a year's time.

Today's Stocks from Zacks' Hottest Strategies

It's hard to believe, even for us at Zacks. But while the market gained +18.8% from 2016 - Q1 2017, our top stock-picking screens have returned +157.0%, +128.0%, +97.8%, +94.7%, and +90.2% respectively.

And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - Q1 2017, the composite yearly average gain for these strategies has beaten the market more than 11X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.

See Them Free>>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Lincoln Electric Holdings, Inc. (LECO): Free Stock Analysis Report

Caterpillar Inc. (CAT): Free Stock Analysis Report

Komatsu Ltd. (KMTUY): Free Stock Analysis Report

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

To read this article on Zacks.com click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Symbols: LECO , CAT , HEES

More from Zacks.com




Equity Research

Research Brokers before you trade

Want to trade FX?