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Top 4 Industrial Stocks Likely to Beat Q1 Earnings Estimates


The initial quarter of 2016 was plagued by the same headwinds that had adversely influenced the previous four-quarters. While economic uncertainties prevailed in some major developing and developed nations, soft commodity prices and adverse impacts of unfavorable foreign currency movements kept growth momentum restricted for a few industries.  
 
As a result of the weakening health of the global economy, the International Monetary Fund (“IMF”) lowered its world economic outlook to 3.2% for 2016 and 3.5% for 2017. Economic growth forecasts for advanced and emerging economies have been lowered by 20 basis points (bps) for 2016 and 10 bps for 2017.
 
Narrowing down to the U.S. markets, results of all S&P 500 companies released till Apr 20 showed a -9% fall in earnings and a meager +0.6% increase in revenues compared with the year-ago quarter. Conditions are unlikely to improve, with earnings for the S&P 500 companies projected to fall 9.4%, versus 6.1% decline recorded in the previous quarter. Revenues are likely to edge down 80 bps, better than the decline of 3.2% in fourth-quarter 2015.
 
Industrial Products Stocks: Q1’16 Any Different from ’15 Quarters?
 
Though the impact of macro headwinds seemed to have eased a bit, we believe industrial products stocks are still negatively influenced by them. Talking of the industrial production in the U.S., an annual fall of 2.2% was recorded in first-quarter 2016 compared with 3.4% in the previous quarter. Also, unfavorable foreign currency movements and economic uncertainties were major concerns for these stocks.
 
As of Apr 20, roughly 14.3% of industrial products stocks in the S&P 500 Group reported results for the Jan-Mar quarter, recording a mere 1.7% and 1.5% growth in earnings and revenues, respectively. Taking into consideration the prevalent headwinds, earnings for the Industrial Products sector are expected to decline 24.9% in the quarter; while revenues will likely fall 9.4%. Amid such an uncertain environment, choosing the right stocks with a potential to beat earnings estimates can be a daunting task.
 
Guide to Select the Right Stock
 
The Industrial Products sector includes containers & glass, industrial products & services, machinery-electrical, machinery and pollution control industries. In this diversified sector, stocks with high investment rankings can be of interest to investors seeking exposure in the sector. But it is advisable to choose stocks with a favorable Zacks Rank of #1 (Strong Buy), #2 (Buy) or #3 (Hold) and a positive Earnings ESP (the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate), as these two factors increase the probability of a stock surprising estimates in the quarter.
 
Below we have listed four Industrial Products stocks, currently equipped with the right combination of elements to post an earnings beat for Jan-Mar quarter:
 
John Bean Technologies Corporation (JBT): The company, has a $1.7 billion market capitalization, and primarily deals with providing solutions to the food processing and air transportation industries. The company has a solid customer base in the U.S. and internationally.
 
The company, with a Zacks Rank #1 and a positive Earnings ESP of 13.33%, seems a suitable pick for investors seeking exposure in this industry. Moreover, the stock promises solid return of 46.7% on equity and 17.3% on investments. These prospects are again supported by the company’s efforts to improve its services and build a sound customer base. Dividend yield presently stands at 0.7%.
 
The stock is currently valued at a forward P/E multiple of 25.29.  The company’s solid return profile and estimated 5 year earnings growth rate of 15% improve its prospects.
 
John Bean Technologies Corporation is expected to release first-quarter 2016 results on Apr 26, 2016 after market closes.
 
SPX FLOW, Inc. (FLOW): The company is engaged in the distribution of engineered flow components, process equipment and turn-key systems. In addition, the company provides after-market parts and services to its vast customer base in the food & beverage, power & energy and industrial end-markets. Currently, the company has a market capitalization of $1.2 billion.
 
The stock, with a Zacks Rank #1 and a positive Earnings ESP of 100%, seems a good investment option. In addition, the stock offers return of 7.8% on equity and 3% on assets. Profitability growth is supported by the company’s geographically diversified business and a large client base. The stock is currently valued at a forward P/E multiple of 17.68 versus 18.02 for the industry.
 
SPX FLOW, Inc. will release first-quarter 2016 results on May 4, before the market opens.
 
Rockwell Automation Inc. (ROK): The company, with a $15.1 billion market capitalization, is an original equipment manufacturer of industrial automation equipment, application specific integrated software and consulting design services.
 
As suggested, the industrial equipment maker is worth considering as it carries a favorable Zacks Rank #3 and a positive Earnings ESP of 3.03%. Also, the stock promises solid returns of 35% on equity and 21.5% on investments. Prospects are supported by the company’s efforts to diversify its sales stream, improve quality and build a sound partner network. Dividend yield currently stands at 2.52%.
 
The stock is currently valued at a forward P/E multiple of 19.71 versus 19.10 for the industry. Despite this, the company’s solid return profile, low debt position, debt-to-equity of 66.8% as compared with 151.7% for the industry and estimated 5-year earnings growth rate of 7.59% enhances its investment value.
 
Rockwell Automation is slated to release second-quarter fiscal 2016 (ended Mar 2016) results on Apr 27, before the market opens.
 
Regal Beloit Corporation (RBC): The company is engaged in manufacture and distribution of electric motors, electrical motion controls, and power generation and transmission products. The company has a vast client base in the U.S. as well as in foreign markets. Currently, the company has a market capitalization of $3 billion.
 
The stock, with a Zacks Rank #2 and a positive Earnings ESP of 0.92%, seems a good investment option. In addition, the stock offers return of 11.9% on equity and 6.3% on investments. Profitability growth is estimated at roughly 9.67% for the coming five years. The stock is currently valued at a forward P/E multiple of 13.38 versus 18.02 for the industry.
 
Regal Beloit Corporation will release first-quarter 2016 results on May 9, after the market closes.
 
Going Forward
 
Effective governmental policies as well as huge investments in infrastructure development can improve industrial products demand and also create new jobs. Until we ride through the difficult economic environment, choosing some possible winners on the basis of a solid Zacks Rank and a positive Zacks Earnings ESP might work wonders for some interested investors this earnings season.
 
 
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 >

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
 
JOHN BEAN TECH (JBT): Free Stock Analysis Report
 
SPX FLOW INC (FLOW): Free Stock Analysis Report
 
ROCKWELL AUTOMT (ROK): Free Stock Analysis Report
 
REGAL BELOIT (RBC): Free Stock Analysis Report
 
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