Olivia Pratt
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10 industrial stocks with the potential to rise up to 41%

Better-than-expected earnings are already pushing up their share prices

Bloomberg News/Landov

Analysts expect shares of Precision Castparts to jump 29% over the next 12 months.

Analysts are upbeat about the prospects for large-cap U.S. industrial stocks, so we have listed the 10 with the biggest potential upside based on consensus price targets.

Industrial shares are driving a major rally for U.S. stocks today on the strength of better-than-expected earnings for several major players. Those include Caterpillar Inc. CAT, +4.97% which raised its profit outlook, despite CEO Doug Oberhelman’s disappointment with the pace of global economic growth. Caterpillar’s stock jumped 5% today.

Shares of 3M Co. MMM, +4.39% rose 4.4% after the company reported a 6% year-over-year increase in third-quarter earnings and raised its guidance.

General Motors Co. GM, -1.21% suffered a 14% decline in third-quarter profit, but that was actually good news, since earnings were better than expected and the operating margin for North America improved to 9.5% from 9.3%. The company’s shares slipped 1.2%.

With the U.S. economy growing at a solid pace, while most other developed nations are struggling, this is a good time to take a look at the industrial stocks analysts polled by FactSet expect to rise the most over the next year.

The list is limited to U.S. industrial-sector companies included in the S&P 500. We have also narrowed the list to companies with majority “buy” or “outperform” ratings among analysts:

S&P 500 industrials with biggest 12-month upside
CompanyTickerIndustryClosing price - Oct. 22Consensus 12-month price targetUpside potential
Delta Airlines Inc.DAL,+1.66%Airlines$37.30$52.5841%
Fluor Corp.FLR,+4.85%Engineering and Construction$61.62$86.7341%
Jacobs Engineering Group Inc.JEC,+3.50%Engineering and Construction$45.71$61.2434%
Flowserve Corp.FLS,+3.25%Industrial Machinery$64.27$83.8130%
Precision Castparts Inc.PCP,-0.95%Aerospace and Defense$226.20$290.6829%
Ryder Systems Inc.R,+3.86%Finance/ Rental/ leasing$81.17$103.4227%
Quanta Services Inc.PWR,+1.50%Engineering and Construction$31.99$40.7527%
Boeing Co.BA,+0.48%Aerospace and Defense$121.45$148.9623%
Cummins Inc.CMI,+3.30%Trucks/ Construction/ Farm Machinery$132$161.7323%
Nielsen N.V.NLSN,-2.06%Advertising/ Marketing Services$42.70$51.1920%
Source: FactSet
Of this group, only six have reported earnings so far this season. Fluor Corp.FLR, +4.85% Jacobs Engineering Group Inc. JEC, +3.50% Quanta Services Inc.PWR, +1.50% and Cummins Inc. CM, +1.89% will announce results over the next few weeks.This next table shows growth in sales per share for the most recent quarter:
Growth of sales per share
CompanyTickerSales per share - most recent quartersales per share - year earlier% growth
Quanta Services Inc.PWR$8.49$6.8823%
Nielsen N.V.NLSN$4.14$3.6314%
Boeing Co.BA$32.50$28.8413%
Cummins Inc.CMI$26.38$24.0510%
Delta Air Lines Inc.DAL$13.26$12.129%
Pecision Castparts Inc.PCP$17.4815.989%
Jacobs Engineering Group Inc.JEC$24.37$23.474%
Ryder System Inc.R$31.83$31.302%
Flowserve Corp.FLS$8.75$8.710%
Fluor Corp.FLR$32.73$43.81-25%
Source: FactSet
Sales per share is a useful measure because it incorporates any dilution to shareholders from the issuance of stock, as well as any declines in share counts brought about by stock repurchases. It also helps investors look beyond EPS and net income, which can be driven by non-core items or cost-cutting, without “telling the story” of how quickly a company is growing its business.Fluor Corp. reported a 26% drop in second-quarter revenue to $5.3 billion, as sales from its mining and metals businesses declined. Earnings were down 52% to $77.8 million. The company will announce third-quarter results on Oct. 31, with analysts expecting net income of $176 million, or $1.10 a share, on revenue of $6.02 billion.

The following table shows total returns, as well as forward price-to-earnings ratios based on consensus 2015 and 2016 earnings-per-share estimates. The table is sorted so the cheapest stocks to 2016 EPS estimates are listed first:

Total returns and forward P/E ratios
CompanyTickerTotal return - YTDTotal return - 3 yearsPrice/ 2015 EPS estimatePrice/ 2016 EPS estimate
Delta Air Lines Inc.DAL37%336%11.59.2
Jacobs Engineering Group Inc.JEC-27%20%14.012.1
Cummins Inc.CMI-5%48%14.712.1
Fluor Corp.FLR-23%17%14.612.4
Ryder Systems Inc.R11%84%14.512.5
Quanta Services Inc.PWR1%57%16.113.5
Precision Castparts Inc.PCP-16%34%16.214.0
Boeing Co.BA-9%101%14.614.1
Flowserve Corp.FLS-18%136%16.714.7
Nielsen N.V.NLSN-6%53%17.115.5
Source: FactSet

As you can see, many of those companies have underperformed the S&P 500’s 6% total return this year and 66% return over the past three years. But analysts are clear in showing they believe the U.S. economy will continue its brisk expansion, taking those stocks up with it.

Philip van Doorn