Some Mid-Cap Industrials With Investment Value
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Forecasts indicate that gross domestic product will expand more than 2% in the second quarter. While automobiles and homes may again lead the charge, offset by weakness elsewhere, industrial manufacturers are poised to remain steady. The maintenance, repair and operations, and original equipment manufacturing (OEM) markets are some of those served, and the firms are dependent on capital spending, along with consumer demand.
Applied Industrial Technologies (NYSE: AIT) - support from healthy manufacturing and utility conditions?
Applied Industrial Technologies is a supplier of a wide range of items including bearings, power transmission components, fluid power components and numerous others. One metric utilized by management to gauge sales prospects: the Institute for Supply Management's economic activity report showed a May reading that dipped slightly on a sequential basis. However, this was the first decline since November of 2012. Another economic measure, set to be released shortly after this writing, Industrial Production, was targeted to be roughly flat to a bit higher in May.
In all, company management, in its earnings release about a month ago, remained optimistic about the industrial environment and guided toward share-net of $2.70 to $2.90 for the fiscal year ending June 2013, with sales climbing 4% to 7%. The favorable calendar year outlook, though, if it materializes, could well spur accelerated growth in fiscal 2014.
Accordingly, sales in the Fluid Power business and Service Center based Distribution segment could have upside to this year's numbers. Note that acquisitions have been providing a lift to the top and bottom lines, as stated in the March quarter financials. Share profits would receive a boost, as well, much to shareholders' delight, as share net was flat year over year in the March quarter. The stock, in fact, did run up during the month of May, and could be a good near- or long-term investment on a resumption of earnings growth.
SPX Corp. (NYSE: SPW) - poised for rapid earnings improvements behind margin expansion
Although SPX' sales weakened modestly in the March quarter, share net climbed to $0.20 from $0.17 in the previous year. Gross profitability increased within its Flow Technology segment (a business where Applied Industrial Technologies also operates) as a result of higher sales and volumes within its power transformer and residential boiler categories. Be aware that the fluctuations in sales in the transformer product line have in the past led to significant movements in overall earnings, and it remains a key business.
The power and energy industry contributes a substantial proportion of SPX's total revenue, 43% in 2012 to be precise. Its second-largest customer contingency is food and beverage at 19%, followed by industrial flow at 17%. The December 2011 acquisition of Clyde Technologies solidified growth in its core Flow Technology segment during 2012 and into 2013. Management is focused on boosting productivity in that pump technology business.
In addition, some of the primary initiatives in terms of driving cost reductions include a restructuring and the sharpened focus on Flow Technology, possibly by way of asset buyouts and divestitures of non-division units.
Shares of the manufacturer offer long-term capital appreciation. Volatility could be a hindrance to some degree, but we believe SPX's technologies will be embraced by additional industries, and that it will complete accretive acquisitions.
Finally, in review, Applied Industrial Technologies' outlook may rest on particular economic statistics, such as economic activity and industrial production, not to mention capacity utilization. SPX is taking measures to grow profitability and has solid prospects for the coming year. A third mid-cap industrial to be considered part of the equation is Nordson Corp. (NASDAQ: NDSN). That diversified manufacturer operates in three segments: Adhesive Dispensing Systems, Advanced Technology Systems, and Industrial Coating Systems. It's seeking to grow through acquisition for the long term. A number of buyouts during 2012 are being integrated currently, and these supported profit growth in the March quarter. We expect margins to improve over time, as benefits of purchases are realized. The stock is worth owning for its value over the three to five year time frame as a strong entity with climbing sales across all business units.
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