Industrial production has been rebounding at an extraordinary pace over the past few months. The phasing out of social distancing restrictions is allowing factories to operate near full capacity. As a result, total industrial production increased at a 5.5% annual rate in the second quarter, ended June 30, while manufacturing output rose 3.4% from its year-ago value, according to the latest Federal Reserve report. Also, utility production increased 2.7% in the month of June.
However, the current 13-year-high inflation rate is putting pressure on industrial and manufacturing activities. Nevertheless, the Fed believes current inflation levels to be temporary and the central bank is expected to maintain its dovish monetary stance in the near term to boost industrial output further. Furthermore, with Congress currently debating multiple spending bills to accelerate the current pace of economic revival, total U.S. industrial production is expected to rise further in the coming quarters.
Therefore, we think industrial stocks ABB Ltd (ABB), Trane Technologies (TT), Otis Worldwide Corporation (OTIS), and Expeditors International of Washington, Inc. (EXPD) should deliver solid upside in the near term.
Click here to check out our Industrial Sector Report for 2021
ABB Ltd (ABB)
Headquartered in Zurich, Switzerland, ABB manufactures and sells electrification, industrial automation, and robotics and motion products to customers in utilities, industry, transport, and infrastructure worldwide.
On July 23, a U.K.-based sustainable energy company, collaborated with ABB to support GRIDSERVE’s Electric Highway charging network across the U.K. with ABB’s acclaimed Ultrafast DC and Fast DC electric vehicle (EV) chargers. The U.K.’s growing EV market should benefit these companies because their solutions make charging easier and more accessible.
In an announcement on July 20, ABB said it will acquire ASTI Mobile Robotics Group (ASTI), a leading global autonomous mobile robot (AMR) manufacturer. With this acquisition, ABB will be the only company to offer a full automation portfolio of AMRs, robots, and machine automation solutions, from production to logistics to the point of consumption.
ABB’s total revenues for its fiscal second quarter, ended June 30, 2021, increased 21% year-over-year to $7.45 billion. The company’s gross profit came in at $2.51 billion, up 26.2% from the prior-year period. Its income from operations has been reported at $1.09 billion for the quarter, representing a 91.6% rise from the prior-year period. ABB’s net income came in at $752 million, up 135.7% from the year-ago period. Its EPS increased 146.7% year-over-year to $0.37. The company had $2.86 billion in cash and cash equivalents as of June 30, 2021.
A $0.36 consensus EPS estimate for the current quarter, ending September 30, 2021, represents a 71.4% improvement year-over-year. ABB surpassed consensus EPS estimates in each of the trailing four quarters. The $7.01 billion consensus revenue estimate for the current quarter represents a 6.5% gain from the prior-year period. Analysts expect the stock’s EPS to grow at a 14.6% rate per annum over the next five years.
The stock has gained 44% over the past year and 6.8% over the past month. It closed yesterday’s trading session at $36.83.
It’s no surprise that ABB has an overall B rating, which equates to Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has an A grade for Momentum, and a B grade for Stability, Sentiment, and Quality. Click here to see the additional ratings for ABB (Growth and Value).
ABB is ranked #13 of 84 stocks in the A-rated Industrial - Machinery industry.
Trane Technologies (TT)
TT is an Ireland-based company that designs, manufactures, sells, and services climate control products for heating, ventilation, air conditioning, and transport solutions. The company markets its products to retail outlets, construction companies, and HVAC maintenance and repair companies worldwide.
On July 08, 2021, TT and Brookfield Renewable (BEP), a global renewable energy and decarbonization business, announced an agreement to offer decarbonization-as-a-service to commercial, industrial, and public-sector customers across North America. Leveraging BEP’s distributed generation business and TT’s expertise will help customers meet sustainability targets and reduce operating costs through upgrading critical energy infrastructure and installing onsite renewable energy. Both companies expect to benefit from the growing demand for decarbonization-as-a-service.
In June, Honeywell (HON) partnered with TT to accelerate the transition to a next-generation, environmentally preferable refrigerant by field testing HON’s Solstice N41 (R-466A), the industry's first non-flammable alternative to R-410A. TT will test its compatibility with new equipment installations and retrofit conversions in the tests by closely monitoring power and energy consumption. Both companies hope to contribute significantly to improving carbon emissions.
For its fiscal first quarter, ended March 31, TT’s net revenues increased 14.3% year-over-year to $3.02 billion. The company’s non-GAAP operating income came in at $367.90 million, up 92.7% from the prior-year period. Its adjusted net income has been reported $245.40 million, representing a 133.7% year-over-year improvement. TT's EPS has increased 134.9% year-over-year to $1.01. As of March 31, 2021, the company had $2.84 billion in cash and cash equivalents. Analysts expect TT’s EPS to improve 12.8% to $1.94 in the current quarter, ending September 30, 2021. It surpassed the Street’s EPS estimates in each of the trailing four quarters. Analysts expect its revenue to be $3.76 billion for the current quarter, representing a 19.6% rise year-over-year. Its EPS is expected to grow at a 13.6% rate per annum over the next five years.
The stock has gained 62.3% over the past nine months and 11.5% over the past month. It ended yesterday’s trading session at $200.77.
TT’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
The stock has an A grade for Sentiment, and a B grade for Growth and Quality. Click here to see the additional ratings for TT (Stability, Value, and Momentum).
Of 89 stocks in the B-rated Industrial - Equipment industry, TT is ranked #33.
Otis Worldwide Corporation (OTIS)
OTIS manufactures, installs, and provides elevators, escalators, and moving walkways, and provides maintenance and repair services for residential and commercial buildings and infrastructure projects worldwide. Otis is based in Farmington, Conn.
On July 7, OTIS China was selected to provide 69 elevators and escalators for the Zhangiang “Gate of Science” East Tower in Shanghai. The company will install its Compass 360 intelligent elevator dispatch system to maximize elevator traffic management efficiently. Because China is the world’s largest elevator new equipment market, OTIS China is likely to benefit greatly from this project based on its efficient product lines.
On June 28, OTIS’ Japanese subsidiary Nippon Otis Elevator Company, was selected to install 15 elevators, including 4 Gen2 Premier lifts, in the Toranomon-Azabudai Project, one of the largest redevelopment projects in Japan. Nippon Otis’ Gen2 Premier is its best-ever selling elevator. The company hopes to receive further projects in the coming months.
OTIS’ net sales for its fiscal second quarter, ended June 30, 2021, increased 22.2% year-over-year to $3.70 billion. The company’s non-GAAP operating profit has been reported at $572 million, representing a 25.2% rise from the prior-year period. OTIS’ non-GAAP net income came in at $342 million, up 40.2% from the prior-year period. Its non-GAAP EPS increased 41.1% year-over-year to $0.79. As of June 30, the company had $1.92 billion in cash and cash equivalents.
For the current quarter, ending September 30, 2021, analysts expect OTIS’ EPS to be $0.73, representing a 5.3% year-over-year improvement. It surpassed the Street’s EPS estimates in each of the trailing four quarters. Its revenue is expected to be $3.60 billion for the current quarter, up 8.4% from the prior-year period. The stock’s EPS is expected to grow at an 11% rate over the next five years.
OTIS has gained 42.4% over the past nine months and 8.1% over the past month. It ended yesterday’s trading session at $88.22.
OTIS’ 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 stock has a B grade for Stability, Quality, and Sentiment. We have also graded OTIS for Growth, Value, and Momentum. Click here to access all OTIS’ ratings.
OTIS is ranked #26 of 84 stocks in the A-rated Industrial - Machinery industry.
Expeditors International of Washington, Inc. (EXPD)
EXPD is a Seattle, Wash.-based global logistics company that offers air and ocean freight forwarding, vendor consolidation, customs clearance, marine insurance, distribution, and other international logistics and ancillary services. The company serves customers in retailing and wholesaling, electronics, technology, and industrial and manufacturing companies.
EXPD’s total revenues for its fiscal first quarter, ended March 31, 2021, increased 76.5% year-over-year to $3.36 billion. The company’s operating income has been reported at $385.52 million, representing a 142.4% year-over-year improvement. While its net earnings increased 134.8% year-over-year to $287.22 million, its EPS increased 135.2% year-over-year to $1.67. The company had $1.79 billion in cash and cash equivalents as of March 31, 2021.
The $1.48 consensus EPS estimate for the current quarter, ending September 30, 2021, represents a 31.8% rise from the prior-year period. It surpassed the Street’s EPS estimates in each of the trailing four quarters. The $3.24 billion consensus revenue estimate for the current quarter represents a 31.5% rise from the prior-year period. Analysts expect the stock’s EPS to grow at a 6.6% rate per annum over the next five years.
EXPD has gained 34% over the past nine months and 15.4% over the past three months. It closed yesterday’s trading session at $126.35.
EXPD’s POWR Ratings reflect its solid prospects. The company has an overall B rating, which translates to Buy in our proprietary ratings system.
EXPD has a B grade for Momentum, Sentiment, and Quality. In addition to the POWR Ratings grades we’ve just highlighted, one can see EXPD ratings for Growth, Value, and Stability here.
EXPD is ranked #10 of 16 stocks in the A-rated Air Freight & Shipping Services industry.
Click here to check out our Industrial Sector Report for 2021
ABB shares were trading at $36.81 per share on Wednesday afternoon, down $0.02 (-0.05%). Year-to-date, ABB has gained 33.83%, versus a 18.18% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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