The Zacks Metal Products - Procurement and Fabrication industry has been witnessing deceleration in orders of late due to subdued customer spending. While elevated input costs continue to act as headwinds, improving supply-chain issues offer some respite. Amid these conditions, industry players like Norsk Hydro ASA NHYDY, AB SKF SKFRY, ESAB Corporation ESAB, Century Aluminum CENX and TriMas TRS are poised to benefit from their proactive cost-management actions and efforts to improve efficiency. Additionally, their continuous investments in automation and innovation are anticipated to contribute to their growth.
The Zacks Metal Products - Procurement and Fabrication industry primarily comprises metal processing and fabrication service providers that transform metal into metal parts, machinery or components used across various other industries. Their processes include forging, stamping, bending, forming and machining, which are used in shaping individual pieces of metal, and welding and assembling to join parts. The companies either use one of these processes or a combination of all. The most common raw materials utilized by metal fabrication companies include plate metal, formed or expanded metal, tube stock, welding wire or rod, and casting. The industry players serve an array of markets, including construction, mining, aerospace and defense, automotive, agriculture, oil and gas, electronics/electrical components, industrial equipment, and general consumer. Laser Profile Cutting
Trends Shaping the Future of the Metal Products - Procurement and Fabrication Industry
Ongoing Weakness in Order Levels is Concerning: Per the Fed’s latest industrial production report, the aggregate production of fabricated metal products in the United States rose 0.2% in November 2023, following a 0.3% dip in October. Over the 12 months ended November 2023, the production of fabricated metal products was down 1.3%. Overall, industrial production dipped 0.4% over the same period. The Institute for Supply Management’s manufacturing index was 46.7% in November, contracting for the 13th month in a row. The average for the 12 months ended November 2023 is 47.2%. Customers have been curbing their spending amid the ongoing uncertainty in the global economy and persisting inflationary trends. The New Orders Index was 48.3% in November, languishing in the contraction territory for 15 months. Companies are still managing outputs appropriately as order softness continues. The industry has also been bearing the brunt of supply-chain issues. On a positive note, some industry players recently witnessed easing supply-chain issues. The delivery performances of suppliers to manufacturing companies have improved for the 14th straight month in November. Once the situation normalizes, demand in the metal Products - Procurement and Fabrication industry’s diverse end markets will drive its growth. High Costs & Supply-Chain Woes Persist: The industry has been experiencing significant inflation levels, including higher prices for labor, freight and fuel. The companies are witnessing labor shortages for some positions and incurring steep labor costs to meet demand. The industry players are focusing on pricing actions, cost-cutting measures, efforts to improve productivity and efficiency, and the diversification of the supplier bases to mitigate some headwinds. Automation & End-Market Growth to Act as Catalysts: The industry’s customer-focused approach to providing cost-effective technical solutions, automation to increase efficiency and lower labor costs, and the development of innovative products will drive growth in the days ahead. Improvements in end-use sectors, such as manufacturing, aerospace and automotive, are anticipated to benefit the metal fabrication market over the next few years. Developing countries hold promise due to rapid industrialization. This, in turn, is likely to create demand.
Zacks Industry Rank Indicates Dim Prospects
The group’s Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates tepid prospects in the near term. The Zacks Metal Products - Procurement and Fabrication industry, which is a 10-stock group within the broader Industrial Products sector, currently carries a Zacks Industry Rank #237, which places it in the bottom 6% of the 252 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group’s earnings growth potential. Year to date, the industry’s earnings estimates for the current year have moved down 49%. Earnings estimates for the next year have moved south 47%. Before we present a few stocks that you may want to consider for your portfolio, let’s look at the industry’s recent stock-market performance and the valuation picture.
The Zacks Metal Products - Procurement and Fabrication industry has outperformed its sector but underperformed the Zacks S&P 500 composite over the past year. Over this period, the industry has gained 19.9% compared with the sector’s growth of 14.3% and the Zacks S&P 500 composite’s rise of 24.9%.
Based on the trailing 12-month EV/EBITDA ratio, a commonly used multiple for valuing the Metal Products - Procurement and Fabrication companies, the industry is currently trading at 16.43 compared with the S&P 500’s 13.83 and the Industrial Products sector’s trailing 12-month EV/EBITDA of 16.16. This is shown in the charts below.
Over the last five years, the industry traded as high as 18.08 and as low as 4.90, with the median at 10.17.
5 Metal Products - Procurement and Fabrication Stocks to Keep Tabs on
Norsk Hydro: The company has been adjusting its capacity to meet market demand. NHYDY continues to focus on reducing costs and improving operational excellence, which will help drive margins. It has been making progress on the Hydro 2025 strategy, both strengthening its position in low-carbon aluminum and growing in new energy areas. Greener aluminum, with a lower carbon footprint, is a key lever for the green transition. Norsk Hydro recently signed an agreement with Macquarie Asset Management, which will acquire 49.9% of NHYDY’s renewable energy company, Hydro Rein. This transaction marks a milestone for the execution of Norsk Hydro’s strategic pillar of growing in renewable energy. The company aims to add 1 million tons of recycling capacity to the portfolio by 2027, primarily in Europe and North America, to meet the growing demand for recycled aluminum. NHYDY is expected to benefit from aluminum demand, driven by electric vehicles, energy-effective buildings and infrastructure to support the energy transition. NHYDY shares have gained 19% over the past six months. The Zacks Consensus Estimate for Norsk Hydro’s earnings for fiscal 2024 has been unchanged over the past 60 days. The company has a trailing four-quarter earnings surprise of 15.5%, on average. NHYDY currently has an estimated long-term earnings growth rate of 6.7% and a Zacks Rank #3 (Hold).
AB SKF: The company has effectively countered cost inflation by adjusting pricing and improving manufacturing efficiency. It is progressing well on its strategy to simplify its portfolio. SKFRY continues to invest in technology and innovation, and has promising projects in the pipeline in several high-growth segments, such as Railway, Agriculture and Machine Tools. With magnetic bearings playing a central role in green industries, AB SKF is now focused on growing this business. The recent acquisition of 2C Composites will not only boost SKFRY’s magnetic bearing offerings but will also generate additional revenue streams. The company has concluded the strategic review of the Aerospace business. To leverage its full potential within this industry, the company is intensifying its focus on core segments — Aeroengine bearings and Aerostructures — through accelerated investments, including digitalization, automation and modernization. It is also exploring strategic options to exit some non-core business lines in the Aerospace business. Backed by these tailwinds, SKFRY shares have gained 12% in a year. The Zacks Consensus Estimate for earnings for 2024 for the Gothenburg, Sweden-based company has been unchanged over the past 60 days. The company currently has a Zacks Rank #3 and a trailing four-quarter earnings surprise of 8.9%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
ESAB: The company delivered record third-quarter 2023 sales and margins. It has been simplifying its product lines, which is fueling growth and profitability. It continues to drive innovation, growth, margin expansion and higher cash flow using its ESAB Business Excellence system. In September, the company unveiled ESAB's cutting-edge equipment and automation solutions, which have generated interest among customers. The company continues to implement its M&A strategy with the buyouts of Ohio, Therapy Equipment and Swift-Cut, strengthening its gas-control and fabrication technology businesses. The integration of these acquisitions is on track and performing above expectations. The company is progressing toward its goal of creating a faster-growing, higher-margin and less-cyclical business. Its shares have surged 89% over the past year. The Zacks Consensus Estimate for the North Bethesda, MD-based company’s fiscal 2024 earnings has moved up 1% over the past 30 days. The company has a trailing four-quarter earnings surprise of 11.7%. ESAB currently has a long-term estimated earnings growth of 14.9%. It currently carries a Zacks Rank #3.
Century Aluminum: The company recently signed an agreement on a three-year power contract for the Mt. Holly smelter that would enable it to continue at its current capacity. CENX intends to continue investing in this smelter. In Iceland, the company’s new billet casthouse at Grundartangi is nearing completion and is experiencing strong customer engagement for the new NaturAl low-carbon billet products. The company’s acquisition of Noble’s 55% ownership interest in Jamalco — a bauxite mining and alumina production joint venture in Jamaica in April 2023 — is strategic, as it will provide short and secure supply lines, and low logistic costs to each of its smelters. This will help CENX integrate aluminum smelting operations with this critical upstream supply of bauxite and alumina to create a more balanced and robust operational footprint, resulting in an organization that is better positioned to deliver strong performance through industry cycles. CENX is taking actions to increase its production to capitalize on the sustained strength in the global aluminum markets. The company has been benefiting from the management of controllable costs and these initiatives are expected to support its bottom line in the near future. Century Aluminum has a trailing four-quarter earnings surprise of 77.5%, on average. CENX currently carries a Zacks Rank #3.
TriMas: The company is witnessing sales growth in its Specialty Products segment from higher demand for steel cylinders and engines, and compressors used in construction and HVAC applications. It is also seeing increased sales of engines, compressors and replacement parts for stationary power generation units, and applications for natural gas and crude oil extraction as a result of higher crude and natural gas pricing, and increased oil-field activity in North America. Order intake and backlog remain strong in the Aerospace segment. TriMas has a strong pipeline of products and process innovation, which will sustain long-term growth. Its strategy is to accelerate growth through acquisitions, particularly in its Packaging and Aerospace platforms, backed by long-term growth and performance profiles. The company has been focusing on leveraging the TriMas Business Model, which was implemented in late 2016 to improve the performance of its businesses. TRS shares have gained 2.5% in a year. Bloomfield Hills, MI-based TriMas is a diversified global designer, manufacturer and distributor of engineered and applied products that serve a variety of industrial, commercial and consumer end markets worldwide. The Zacks Consensus Estimate for the company’s fiscal 2024 earnings has been unchanged over the past 90 days. The company currently carries a Zacks Rank #3. TRS has a trailing four-quarter earnings surprise of 1.7%, on average.
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Norsk Hydro ASA (NHYDY) : Free Stock Analysis Report
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ESAB Corporation (ESAB) : Free Stock Analysis Report
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