The Zacks Manufacturing – General Industrial industry has been grappling with persistent weakness in the manufacturing sector and supply-chain disruptions. Also, rising input costs and a tough labor market create concerns for the industry.
However, industry participants’ focus on cost-control measures and investments in product development have been allowing them to stay competitive in the market. Dover Corporation DOV, Applied Industrial Technologies, Inc. AIT, Generac Holdings Inc. GNRC and DXP Enterprises, Inc. DXPE are a few industry participants that can capitalize on the prevalent opportunities.
About the Industry
The Zacks Manufacturing – General Industrial industry comprises companies that produce a wide range of industrial equipment. Some industry players offer power transmission products, bearings, engineered fluid power components and systems, industrial rubber products, vapor-abrasive blasting equipment, vehicle-powered truck refrigeration systems, adhesive, gel coat equipment, flow-control components and linear motion components. Industrial manufacturing companies also reconstruct and assemble pumps, valves, speed reducers and hydraulic motors. The companies provide services to original equipment manufacturing and maintenance, repair and overhaul customers. These end users belong to the mining, oil and gas, forest products, agriculture and food processing, fabricated metals, chemicals and petrochemicals, transportation and utilities industries.
Major Trends Shaping the Future of the Manufacturing General Industrial Industry
Weakness in the Manufacturing Sector: Persistent weakness in the manufacturing sector has been denting demand in the industry. After breaking a 16-month contraction streak by growing in March 2024, the manufacturing sector contracted for the ninth consecutive month in December 2024. Per the Institute for Supply Management’s (ISM) report, the Manufacturing Purchasing Manager’s Index touched 49.3% in December. A figure less than 50% indicates a contraction in manufacturing activity. Although the Production Index expanded in December, touching 50.3%, the metric was in contraction territory for the previous six consecutive months.
Rising Costs Hurt Margins: Industry participants have been encountering input cost inflation and other expenses, which have been denting profitability. Also, supply-chain issues have increased warehouse, packaging and other logistics expenses. The rise in expenses, along with a tough labor market, poses a threat to margins. That said, companies have been focused on cost management initiatives to mitigate cost-related challenges. These include streamlining operational structures, optimizing supply networks and implementing effective pricing policies.
Investments in Product Development & Innovation: Constant focus on innovation by industry players, product upgrades and the development of new products to stay competitive in the market will likely drive growth. While this augurs well for the industry’s long-term growth, hefty investments in research and development often leave companies with highly leveraged balance sheets.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Manufacturing – General Industrial industry, housed within the broader Zacks Industrial Products sector, currently carries a Zacks Industry Rank #175. This rank places it in the bottom 30% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates weak near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of negative earnings prospects for the constituent companies in aggregate. Looking at the aggregate earnings estimate revision, it appears that analysts are keeping less faith in this group's earnings growth potential. The industry’s earnings estimates for 2024 have moved down 2.6% over the past year.
Despite bleak near-term prospects, we will present a few stocks that you may want to consider buying for your portfolios. However, it is worth looking at the industry’s shareholder returns and current valuation first.
Industry Outperforms Sector but Lags S&P
The Zacks Manufacturing – General Industrial industry has outperformed the broader sector but lagged the Zacks S&P 500 composite index over the past year.
Over this period, the industry has appreciated 11.7% compared with the sector and the S&P 500 Index’s growth of 11.1% and 26%, respectively.
One-Year Price Performance
Industry's Current Valuation
On the basis of forward 12-month Price-to-Earnings (P/E), which is a commonly used multiple for valuing manufacturing stocks, the industry is currently trading at 21.04X compared with the S&P 500’s 22.23X. However, it is above the sector’s P/E ratio of 19.02X.
In the past five years, the industry has traded as high as 26.63X and as low as 15.75X, with the median being 21.04X, as the chart below shows.
Price-to-Earnings Ratio vs SP500
Price-to-Earnings Ratio vs Sector
4 Manufacturing-General Industrial Stocks to Keep a Tab On
DXP Enterprises: Based in Houston, TX, DXP Enterprises is involved in the distribution of maintenance, repair and operating (MRO) products, equipment, and services across the United States and Canada. The company is benefiting from increased sales in the Service Centers and Innovative Pumping Solutions segments. Also, price increases from vendors and suppliers, as well as recent acquisitions in the water and wastewater markets, are expected to bolster DXPE’s growth.
The Zacks Consensus Estimate for this Zacks Rank #1 (Strong Buy) company’s 2024 earnings has been revised upward by 14.3% to $4.07 in the past 60 days. Its shares have surged 162.8% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: DXPE
Applied Industrial: The company is a distributor of value-added industrial products, including engineered fluid power components, bearings, specialty flow control solutions, power transmission products and miscellaneous industrial supplies. AIT is benefiting from solid momentum in the Service Center Based Distribution segment, driven by its strong position in the food and beverage, primary metals and transportation markets. The increase in demand for fluid power MRO services across the U.S. manufacturing sector, driven by growing digitization and higher investment in maintenance operations, is also supporting the segment’s revenues.
This Zacks Rank #2 (Buy) stock has gained 49.2% in the past year. The company outpaced estimates in each of the trailing four quarters, the average earnings surprise being 4.9%. The Zacks Consensus Estimate for its fiscal 2025 (ending June 2025) earnings has been revised 0.2% upward over the past 60 days.
Price and Consensus: AIT
Dover: Based in Downers Grove, IL, Dover is an industrial conglomerate that produces a wide range of specialized industrial products and manufacturing equipment. The company stands to gain from strength in the Engineered Products segment, driven by strong volume in waste handling and industrial winches. Also, solid growth in below-ground retail fueling, fuel transport vehicle wash and industrial gases, coupled with acquisitions in the Clean Energy and components, bode well for Dover.
This Zacks Rank #2 company’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average earnings surprise being 4%. Shares of DOV have gained 26.8% in the past year.
Price and Consensus: DOV
Generac: Headquartered in Waukesha, WI, Generac is a leading manufacturer of backup and prime power generation systems for residential and C&I applications, solar and battery storage solutions, and advanced power grid software platforms and services. It is well-positioned to gain from higher Residential product sales, driven by increasing demand for home standby and portable generators. Also, investment in Wallbox bodes well for the company.
Shares of this Zacks Rank #2 company have gained 32.3% in the past year. GNRC outpaced estimates in three of the trailing four quarters and missed the mark in one, the average earnings surprise being 10.8%. The Zacks Consensus Estimate for 2024 earnings has been revised 0.6% upward over the past 60 days.
Price and Consensus: GNRC
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