Players like Norsk Hydro ASA NHYDY, ESAB Corporation ESAB, Century Aluminum CENX and Northwest Pipe Company NWPX have witnessed order growth and delivered improved performances. Solid end-market demand, efforts to gain market share and investment in automation should aid growth for these companies. Their focus on cost management and improving efficiency will boost margins.
About the Industry
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 to shape individual pieces of metal, and welding and assembling to join parts. The companies either use one of these processes or a combination of these. 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.
What's Shaping the Future of Metal Products - Procurement and Fabrication Industry
Expected Pickup in Order Levels as Inflationary Pressures Abate: Per the Fed’s latest industrial production report, the aggregate production of fabricated metal products in the United States edged down 0.2% in October 2024, same as in September. It marks an improvement from the 1.1% decline in August. Overall, industrial production decreased 0.3% in October after declining 0.5% in September. Hurricane Milton and the lingering effects of Hurricane Helene, and a strike at Boeing led to the decline. The Institute for Supply Management’s Manufacturing Index has been in the contraction territory for seven consecutive months, with a reading of 46.5% in October. Orders have been impacted, reflecting lower customer spending amid inflationary trends. Even though the New Orders index contracted for the seventh consecutive month, it was 47.1% in October, a tad higher than September’s 46.1%. With the inflation metrics showing signs of slowing down, orders will pick up. The industry was affected by supply-chain issues, although some improvement has been noted recently. Once the situation normalizes, demand in the metal Products - Procurement and Fabrication industry’s diverse end markets will drive growth.
Pricing Actions to Combat High Costs: The industry had 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 supplier bases to mitigate some of these headwinds.
Automation & End-Market Growth to Act as Catalysts: The industry’s customer-focused approach to providing cost-effective technical solutions and automation to increase efficiency and lower labor costs bodes well. Also, focus on developing the latest and innovative products should drive growth in the days ahead. Growth in the end-use sectors, such as manufacturing, aerospace and automotive, is 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 Bright Prospects
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates upbeat prospects in the near term. The Zacks Metal Products - Procurement and Fabrication industry, which is a 12-stock group within the broader Industrial Products Sector, currently carries a Zacks Industry Rank #82, which places it at the top 33% of 250 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Before we present a few stocks that you may want to consider for your portfolio, let us take a look at the industry’s recent stock-market performance and valuation picture.
Industry Versus Broader Sector
The Zacks Metal Products - Procurement and Fabrication industry has outperformed its sector and the Zacks S&P 500 composite over the past year.
Over this period, the industry has gained 66% compared with the sector’s growth of 30%. Meanwhile, the Zacks S&P 500 composite has also risen 30%.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month EV/EBITDA ratio, which is a commonly used multiple for valuing Metal Products - Procurement and Fabrication companies, the industry is currently trading at 6.04 compared with the S&P 500’s 24.81 and the Industrial Products sector’s forward 12-month EV/EBITDA of 15.76. This is shown in the charts below.
Enterprise Value/EBITDA (EV/EBITDA) F12M Ratio
Enterprise Value/EBITDA (EV/EBITDA) F12M Ratio
Over the last five years, the industry traded as high as 6.80 and as low as 4.48, the median being 5.94.
4 Metal Products - Procurement & Fabrication Stocks to Keep Tabs on
Northwest Pipe: The company has been implementing cost-reduction techniques and actions to enhance operating efficiency, which will support margins. Rising demand for developed water sources and the pressing need to upgrade, repair and replace the aging U.S water and wastewater systems present significant opportunities for NWPX. The Infrastructure Investment and Jobs Act allocating $55 billion for relevant water infrastructure projects through fiscal 2026 opens up vast possibilities. The company continues strengthening its liquidity by repaying debt and generating strong cash flow from operations, supported by effective working capital management. Northwest Pipe’s growth strategy has been focused on improving the Precast business to reduce the cyclicality of the Steel Pressure Pipe operations, and increasing overall margins and cash flow. The company also continues to look for growth opportunities through expansion or acquisitions. The NWPX stock has gained 27% over the past six months.
The Zacks Consensus Estimate for Vancouver, WA-based Northwest Pipe’s current-year earnings has moved up 11.8% over the past 60 days. The estimate indicates growth of 58.4% from the year-earlier reported number. NWPX has a trailing four-quarter earnings surprise of 32.5%, on average. The company currently flaunts a Zacks Rank #1 (Strong Buy) and has long-term estimated earnings growth of 5%.
Price and Consensus: NWPX
Century Aluminum: The company’s acquisition of Noble’s 55% ownership interest in Jamalco — a bauxite mining and alumina production joint venture in Jamaica — last year has been a boon as it ensured the supply of bauxite and alumina for the company when the world faced supply-chain challenges for the same. It also lowered logistic costs for each of its smelters. Also, per the Advanced Manufacturing Production Credit (section 45X of the Inflation Reduction Act), clarify carbon and other operating supplies will be eligible for a 10% production tax credit, which is beneficial for CENX. Century Aluminum is taking actions to increase its production to capitalize on the sustained strength in the global aluminum markets. The company plans to build the first U.S. primary aluminum smelter in 45 years. Upon completion, the smelter would double the size of the current U.S. primary aluminum industry. The company has been benefiting from the management of controllable costs. These initiatives are expected to support its bottom line in the near future. The CENX stock has gained 61% over the past six months.
The Zacks Consensus Estimate for Chicago, IL-based CENX’s current-year earnings has moved up 19% over the past 60 days. Earnings estimates suggest a year-over-year surge of 747. It currently sports a Zacks Rank #1.
Price and Consensus: CENX
Norsk Hydro: The company has been adjusting its capacity to meet market demand. It continues to focus on reducing costs and improving operational excellence. It has also set a target to improve EBITDA by NOK 14 billion in 2030 from the 2018 baseline. It has been progressing with its strategy by strengthening its position in low-carbon aluminum and growing in new energy areas. The company plans to increase investments in recycling and extrusions to capitalize on the market opportunities emerging from the green transition. It is also building up renewable power generation capabilities as it is key to growth in low-carbon aluminum. To this end, NHYDY is investing in a pumped storage plant in Luster, Norway, aiming to generate 84 GWh of renewable energy annually and improve flexibility in its production system. This will strengthen the Hydro Energy segment’s portfolio, powering industrial production in Norway. Norsk Hydro has recently announced its decision to lower its stake in the synthetic graphite producer Vianode from 30% to 19.9%. NHYDY plans to invest in other projects that align with its priorities. Norsk Hydro’s shares appreciated 17.7% in the last six months.
The Zacks Consensus Estimate for Oslo, Norway-based Norsk Hydro’s earnings for fiscal 2024 has moved up 4% over the past 60 days. The estimate indicates 47.5% year-over-year growth. NHYDY has an estimated long-term earnings growth rate of 52.4% and a Zacks Rank #2 (Buy) at present.
Price and Consensus: NHYDY
ESAB: The company entered a distribution agreement with INFRA Group in June 2024 to expand the availability of ESAB’s differentiated solutions by offering its welding and gas-control equipment to customers in Mexico. In May, ESAB acquired Linde Industries Private Limited, which is a market leader in welding consumables and equipment in Bangladesh. Earlier this year, ESAB completed the acquisition of Sager S.A. and announced an agreement to acquire SUMIG. These acquisitions are of faster-growing, less cyclical and higher-margin businesses that will expand ESAB’s light automation, equipment, and repair and maintenance portfolio in the Americas. The company has been simplifying its product lines and introducing innovative products, fueling growth and profitability. It continues to drive innovation, growth, margin expansion and higher cash flow using its ESAB Business Excellence system. The company expects continued improvements in its adjusted EBITDA and earnings per share in 2024. Its shares moved up 24% in the last six months.
The Zacks Consensus Estimate for North Bethesda, MD-based ESAB’s current-year earnings indicates year-over-year growth of 10.76%. The estimate has moved up 2% over the past 60 days. The company has a trailing four-quarter earnings surprise of 8.34%. ESAB currently has a long-term estimated earnings growth of 11.6%. It currently carries a Zacks Rank #3 (Hold).
Price and Consensus: ESAB
5 Stocks Set to Double
Each was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2024. While not all picks can be winners, previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
Today, See These 5 Potential Home Runs >>Norsk Hydro ASA (NHYDY) : Free Stock Analysis Report
Northwest Pipe Company (NWPX) : Free Stock Analysis Report
Century Aluminum Company (CENX) : Free Stock Analysis Report
ESAB Corporation (ESAB) : Free Stock Analysis Report
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