We issued a research report on Nordson CorporationNDSN on Nov 27. We believe that a solid product portfolio, wide international operations and synergistic benefits from acquired assets have strengthened the company's prospects. It currently has $7.4 billion market capitalization.
It currently carries a Zacks Rank #2 (Buy).
Below we briefly discuss the company's potential growth drivers.
Diversification Benefits: Nordson is poised to gain from its vast customer base in the packaging, nonwovens, polymer processing, products assembly, electronic systems, fluid management, test and inspection, container coating, curing and drying systems, liquid finishing and powder coating end markets. Also, its technologically advanced products, including single-use components, stand-alone units for low-volume operations and microprocessor-based automated systems for high-speed, high-volume production lines, give it a competitive edge.
Furthermore, international diversity has played a major role in the company's profitability over time. It has operations in more than 35 countries, with manufacturing facilities primarily in the United States, People's Republic of China, Germany, Mexico, the Netherlands, Thailand and the United Kingdom. In third-quarter fiscal 2017 (ended Jul 31, 2017), the company sourced nearly 69% of its revenues from international operations.
Inorganic Initiatives Drive Growth: Acquired assets have over time helped Nordson leverage benefits from easy penetration into unexplored markets and expanded product offerings. In this regard, assets acquired in fiscal 2017 are worth mentioning. In January, the company acquired certain assets of ACE Production Technologies, Inc., a manufacturer of selective soldering systems. In February, the company bought 100% shares of Plas-Pak Industries, Inc. and InterSelect GmbH. While Plas-Pak Industries specializes in manufacturing plastic dispensing products, InterSelect GmbH designs and manufactures selective soldering systems. In March, the company acquired Advanced Technologies business of Vention Medical, manufacturer of medical single use components and devices. All these assets have strengthened the company's businesses under Advanced Technology Systems segment. ACE Production Technologies and InterSelect are projected to deliver mid to high single digit growth over the next several years.
Healthy Fiscal '17 Guidance & Long-Term Targets: Nordson is scheduled to release its fourth-quarter and fiscal year 2017 (ended October) results on Dec 13 after the market closes . The company anticipates sales to increase in the range of 4-8% year over year in the fiscal fourth quarter. Acquisitions are likely to contribute 10% to sales growth while foreign currency movements are expected add 1%. Operating margin will likely be 21%. For the year, organic revenue growth is predicted to be 6% while adjusted earnings per share are anticipated to increase 12% year over year to $5.24.
Over the long term (2017 to 2022), the company anticipates revenue growth to be roughly twice the global Gross Domestic Product percentage while aims to improve its operating margin in excess of revenue growth percentage.
Price Performance and Earnings Estimates: Market sentiments have been positive for Nordson over time. In the last three months, the company's shares have yielded 18.2% return, outperforming the 12.1% rally of the industry it belongs to.
The stock's earnings estimates for fiscal 2017 have been revised upward by one analyst while that for fiscal 2018 have been raised by two in the last 60 days. Currently, the Zacks Consensus Estimate for the stock stands at $5.32 for fiscal 2017 and $5.82 for fiscal 2018, representing growth of 1 cent from their respective estimates 60 days ago.
Its earnings in the next three to five years are predicted to grow 15% versus 12.2% expected for the industry it belongs to.
Other Stocks to Consider
Some other stocks worth considering in the industry are Kadant Inc. KAI , Sun Hydraulics Corporation SNHY and Altra Industrial Motion Corporation AIMC . While Kadant and Sun Hydraulics sport a Zacks Rank #1 (Strong Buy), Altra Industrial Motion carries a Zacks Rank of 2. You can see the complete list of today's Zacks #1 Rank stocks here .
Kadant pulled off an average positive earnings surprise of 20.32% over the last four quarters. Also, earnings estimates for 2017 and 2018 were revised upward in the last 60 days.
Sun Hydraulics delivered an average positive earnings surprise of 9.58% in the trailing four quarters. Also, bottom-line expectations for 2017 and 2018 improved over the past 60 days.
Altra Industrial Motion's financial performance was impressive, with an average positive earnings surprise of 17.30% in the last four quarters. Also, earnings estimates for 2017 and 2018 were revised upward over the last 60 days.
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