Chicago, IL – April 16, 2025 – Today, Zacks Equity Research Equity areW.W. Grainger, Inc. GWW, Ashtead Group ASHTY, Andritz ADRZY and ClearSign Technologies CLIR.
Industry: Industrial Services
Link: https://www.zacks.com/commentary/2449273/4-industrial-services-stocks-to-watch-amid-industry-challenges
The Zacks Industrial Services industry’s near-term outlook has been clouded by a weak manufacturing sector as customers remain wary of the effects of tariffs. Increased input costs and the implementation of tariffs are expected to erode industry margins.
Despite the current setback, the rise in e-commerce activities will be a key catalyst for the industry. Companies like W.W. Grainger, Inc. , Ashtead Group, Andritz and ClearSign Technologies are positioned for growth by leveraging strategies to capitalize on this demand. They have also been lowering costs, increasing productivity and efficiency, and investing in automation and digitization, which will aid growth.
The Zacks Industrial Services industry comprises companies that provide industrial equipment products and MRO (maintenance, repair and operations) services. It includes routine maintenance, emergency maintenance and spare part inventory control, which keep a facility and its equipment in good operating condition. Industry participants serve a wide array of customers, ranging from commercial, government and healthcare to manufacturing.
The industry's products (power tools, hand tools, cutting fluids, lubricants, personal protective equipment and consumables) are utilized in production and plant maintenance but are not directly related to customers’ core products or services. These companies reduce MRO supply-chain costs and improve customers' plant floor productivity by offering inventory management and process and procurement solutions.
Manufacturing Activity Contracts, Highlighting Industry Struggles: The manufacturing sector contributes around 70% to the industry's revenues. The Institute for Supply Management’s manufacturing index had been in contraction for 26 consecutive months until December 2024. The index expanded in January and February with readings of 50.9% and 50.3%, respectively. But this recovery was short-lived, with the index slipping into contraction again in March with a reading of 49%. Over the past 12 months, the index has averaged 48.5%.
The New Orders Index contracted in February and March after three consecutive months of expansion. The Index was 45.2% in March, the lowest reading since May 2023 (when it was 43.4%). The index has not delivered consistent growth since the end of its 24-month expansion streak in May 2022. After two consecutive months of expansion, the Production Index moved into contraction territory in March, registering 48.3%. Customers are pulling in orders due to anxiety about continued tariffs and pricing pressures.
High Costs and Impact of Tariffs are Concerning: The industry has 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. Industry players are focusing on pricing actions, cost-cutting measures, efforts to improve productivity and efficiency and the diversification of the supplier base to mitigate some of these headwinds. The imposition of tariffs and retaliatory tariffs will also heighten costs for the industry.
E-commerce to Be a Growth Driver: MRO demand is significantly impacted by the evolution of e-commerce. Customer demand for highly tailored solutions, with real-time access to information and rapid delivery of products, is rising. Customers want to execute their business activities in the most efficient way possible, which often means online.
According to Statista, global e-commerce revenues are expected to reach $4.3 trillion in 2025 and see a compound annual growth rate (CAGR) of 8% between 2025 and 2029. Turkey is expected to lead, followed by Brazil and India. By 2026, the U.S online retail market is forecast to surpass the $1.5 trillion mark. To capitalize on this trend, industrial service companies are heavily investing in improving their digital capabilities and increasing their e-commerce share.
The group’s Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates bearish prospects in the near term. The Zacks Industrial Services Industry, a 19-stock group within the broader Zacks Industrial Products sector, currently carries a Zacks Industry Rank #191, which places it in the bottom 22% of 246 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 Industrial services stocks that investors can add to their portfolio, it is worth taking a look at the industry’s stock-market performance and its valuation picture.
The Industrial Services industry has underperformed its sector and the Zacks S&P 500 composite over the past year.
Over this period, the industry has declined 14.8% compared with the sector’s fall of 11.8%. The Zacks S&P 500 composite has moved up 7.6%.
On the basis of the forward 12-month EV/EBITDA ratio, a commonly used multiple for valuing Industrial Services companies, we see that the industry is currently trading at 26.15X compared with the S&P 500’s 12.88X and the Industrial Products sector’s forward 12-month EV/EBITDA of 19.27X.
Over the last five years, the industry traded as high as 35.06X and as low as 7.44X, the median being 19.92X.
Andritz: The company reported strong order intake of €2.53 billion ($2.87 billion), up 24% year over year, led by Hydropower, Pulp & Paper and Metals. For 2025, the ANDRITZ Group sees project activity picking up across markets and broadly stable development in revenues and operational profitability. Supported by a solid backlog and continued growth in demand for service and green technologies, revenues are projected to be between €8 billion and €8.3 billion ($9.07-$9.41 billion).
Aided by its ongoing measures to increase competitiveness and improvements in revenue mix driven by growing service business, the comparable EBITA margin is expected at 8.6-9.0%. ANDRITZ recently inked a deal to acquire Italian company A.Celli Paper to strengthen its position in the tissue and paper industry. The company has made 82 acquisitions since 2002. Its merger and acquisition strategy is focused on complementary business and technologies , while emphasizing on Service, Digitalization & Decarbonization.
Headquartered in Graz, Austria, Andritz offers a broad portfolio of innovative plants, equipment, systems, services and digital solutions for different industries and end markets. The Zacks Consensus Estimate for ADRZY’s fiscal 2025 earnings has moved up 7% over the past 60 days. The estimate indicates year-over-year growth of 7.3%. The company's shares have gained 13.5% in the past three months. ADRZY currently carries a Zacks Rank #2 (Buy).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Ashtead Group: The company delivered record rental revenue growth and EBITDA in the nine months ended Jan. 31, 2025, an increase of 5% and a 3% respectively. During this period, it invested $2.1 billion in capital across existing locations and greenfields, and $56 million on three bolt-on acquisitions, adding 54 new locations in North America.
ASHTY is well-poised to deliver strong results, aided by its diverse end markets and products, lower debt levels and efforts to strengthen its market position. Initiatives to optimize the cash flow and reduce capital expenditure and operating costs are likely to contribute to growth. It continues to invest in a digital transformation program that will enhance customer experience. The company has a strong pipeline of strategic acquisition opportunities to supplement its organic growth plan. A good quality fleet and a strong financial position bode well.
The Zacks Consensus Estimate for fiscal 2025 earnings for this London, U.K.-based company, which engages in the construction, industrial and general equipment rental business, has been revised upward by 0.1% in the past 60 days. The consensus estimate indicates year-over-year growth of 0.8%. The company has a long-term estimated earnings growth rate of 7%. The company's shares have declined 19.4% in the past three months. ASHTY currently carries a Zacks Rank #3 (Hold).
ClearSign Technologies: The company reported record revenues of $3.6 million in 2024, resulting from both process burner and boiler burner orders. It recently expanded its partnership with Zeeco, Inc. to launch a co-branded process burner line called the Zeeco CS5 and Zeeco hydrogen CS5 Burners. This collaborative effort by ClearSign Technologies and Zeeco is expected to significantly reduce industrial emissions.
The company remains focused on enhancing and innovating product offerings to expand scope and grow the total serviceable market, with an additional focus on diversifying the value of its products. Some of these innovations include the hydrogen burner, the M-Series burners, advanced flares and thermal oxidizers and improvements to ClearSign Eye sensor.
The company recently announced it has received a purchase order for one of its new “M” series process burners, the ClearSign Core M1, from Devco Process. It has received a positive response to this technology, including multiple requests for quotations in addition to this order.
The Zacks Consensus Estimate for Tulsa, OK-based ClearSign Technologies’ earnings for fiscal 2025 has been unchanged over the past 30 days. The estimate currently indicates year-over-year growth of 109%. CLIR has a trailing four-quarter earnings surprise of 11.11%, on average. The company's shares have declined 51.9% in the past three months. The company currently carries a Zacks Rank of 3.
Grainger: The company continues to deliver robust results, aided by margin improvements in its segments and strong operating performance. GWW is well-poised to gain from efforts to increase its customer base through incremental marketing investments and effective marketing strategies.
The High Touch Solutions North America segment will continue to benefit from pricing actions and volume growth. The Endless Assortment segment is gaining from customer acquisitions at its Zoro and MonotaRO businesses. Cost-control measures undertaken by GWW will sustain margins. The company is also focused on improving the end-to-end customer experience by investing in its e-commerce and digital capabilities and executing improvement initiatives within its supply chain.
The Zacks Consensus Estimate for fiscal 2025 earnings for the Lake Forest, IL-based company indicates year-over-year growth of 3.3%. GWW currently has a trailing four-quarter earnings surprise of 0.20%, on average. It has an estimated long-term earnings growth rate of 9.4% and a Zacks Rank of 3 at present. The company's shares have declined 9.7% in the past three months.
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