The industrial sector is flourishing, fueled by supportive legislation, escalating construction outlays, and innovation-driven technical strides. Thus, it seems wise to invest in Eaton Corporation plc (ETN), EMCOR Group, Inc. (EME) and Sonoco Products Company (SON) for potential gains in 2024. Let's understand this in more detail.
Smart factories and cutting-edge technology are catalyzing transformative advancements in the industrial sector. These groundbreaking facilities are reshaping shop floors and operations, empowering manufacturers with enhanced decision-making capabilities through the integration of predictive maintenance and digital twin technology.
Technical innovations such as Artificial Intelligence (AI), machine learning, and advanced analytics are further elevating industrial productivity. AI-driven decision-making extends across diverse domains fostering efficiency and precision throughout the industrial landscape.
Moreover, the apprehensions surrounding economies of scale have yielded a paradigm shift toward personalization, driven by the inventive wave of 3D printing. This technology facilitates the production of bespoke items, fostering innovation through rapid prototyping and paving the way for a new era of individualized manufacturing.
The Infrastructure Investment and Jobs Act (IIJA), the CHIPS and Science Act, and the Inflation Reduction Act (IRA) also stand as pivotal catalysts behind the remarkable strides in the U.S. manufacturing sector this year. Enacted in 2021 and 2022, these legislations have markedly expedited the progress of the industry.
The implementation of these measures has propelled a substantial upswing in construction spending within the manufacturing sector. Factory building expenditures surged to $201 billion annually as of July 2023, marking a 70% increase from the preceding year. This surge establishes a robust foundation for the industry's anticipated expansion in 2024.
The AIA Consensus Construction Forecast Panel anticipates a substantial uptick in non-residential building investment in 2023, projecting a remarkable 20% increase, reminiscent of pre-Great Recession levels. Particularly noteworthy is the expected 10% surge in spending on commercial buildings, coupled with a robust 50% rise in industrial construction.
Considering this outlook, let’s look at the fundamentals of the three industrial stocks.
Eaton Corporation plc (ETN)
Based in Dublin, Ireland, ETN is a power management company. It offers a range of solutions, from electrical and industrial components to aerospace systems, drivetrain technologies, and eMobility components. The company's segments include Electrical Americas; Electrical Global; Aerospace; Vehicle; and eMobility.
On November 30, ETN announced the opening of its Innovation Center in Brossard, Quebec, signaling growth. The 35,000-square-foot facility accelerates research in distributed energy resources, reinforcing ETN's commitment to sustainable solutions for buildings, homes, and the grid.
This move strategically positions ETN for continued leadership and expansion in the evolving energy landscape.
For the third quarter that ended September 30, 2023, ETN’s net sales increased 10.7% year-over-year to $5.88 billion. Its free cash flow rose 10% from the year-ago value to $913 million. Also, the company’s adjusted earnings and adjusted earnings per ordinary share grew 23.2% and 22.3% from the prior year’s period to $994 million and $2.47, respectively.
Analysts expect ETN’s revenue to increase 11.5% year-over-year to $23.14 billion for the fiscal year ending December 2023. The company’s EPS for the ongoing year is estimated to grow 19.3% from the prior year to $9.03. Also, the company topped the consensus EPS estimates in all four trailing quarters.
Shares of ETN have gained 21.8% over the past six months and 50.4% year-to-date to close the last trading session at $237.29.
ETN’s positive fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
ETN has a B grade for Stability, Sentiment, and Quality. It is ranked #26 out of 78 stocks within the A-rated Industrial - Machinery industry.
In addition to the POWR Ratings I’ve highlighted, you can see ETN’s Growth, Value, and Momentum ratings here.
EMCOR Group, Inc. (EME)
EME is a specialized contractor offering electrical and mechanical construction. Its segments encompass United States electrical construction and facilities services; United States mechanical construction and facilities services; United States building services; United States industrial services; and United Kingdom building services.
On July 5, EME disclosed its definitive agreement to acquire ECM Holding Group, Inc. (ECM), a prominent national energy efficiency specialist headquartered in Oshkosh, Wisconsin. The all-cash transaction would enhance EME's standing in energy efficiency services and broaden its bundled nationwide energy conservation and sustainability solutions portfolio.
For the third quarter that ended September 30, 2023, EME’s revenues increased 13.5% year-over-year to $3.21 billion. Its non-GAAP operating income rose 58.1% from the year-ago value to $237.33 million. Also, the company’s non-GAAP net income and non-GAAP earnings per share grew 61.8% and 67.1% from the prior year’s period to $171.11 million and $3.61, respectively.
Analysts expect EME’s revenue to increase 12.8% year-over-year to $12.50 billion for the fiscal year ending December 2023. Likewise, the company’s EPS for the current year is estimated to rise 53.7% from the previous year to $12.45. Furthermore, the company topped the consensus revenue and EPS estimate in all of the trailing four quarters.
The stock has gained 20.8% over the past six months and 45% year-to-date, closing the last trading session at $214.02.
EME’s strong outlook is apparent in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
EME has an A grade for Sentiment and a B for Growth, Momentum, and Quality. It is ranked #3 out of 79 stocks within the B-rated Industrial - Services industry.
Click here to access additional EME ratings for Value and Stability.
Sonoco Products Company (SON)
SON designs, manufactures, and markets engineered and sustainable packaging globally, spanning North and South America, Europe, Australia, and Asia. The company operates through two segments: Consumer Packaging and Industrial Paper Packaging.
On September 8, SON announced the completion of its acquisition of RTS Packaging, LLC’s (RTS) remaining equity interest from joint venture partner WestRock (WRK) and one WestRock paper factory in Chattanooga, Tennessee.
The acquisition is expected to enhance SON's 100% recycled fiber-based packaging solutions, catering to expanding consumer markets in wine, spirits, food, beauty, and healthcare.
During the third quarter that ended October 1, 2023, SON’s net income and earnings per common share increased 7% and 6.5% year-over-year to $131.06 million and $1.32, respectively. As of October 1, 2023, the company’s total assets amounted to $7.27 billion, up from $7.05 billion as of December 31, 2022.
The consensus revenue estimate of $6.92 billion for the fiscal year ending December 2024 reflects a 2.4% year-over-year increase. Similarly, the consensus EPS estimate of 5.43 for the next fiscal year exhibits a 2.2% rise from the previous year. Also, the company surpassed the consensus EPS estimates in three of the trailing four quarters.
The stock has gained 1.9% over the past month, closing the last trading session at $55.05.
SON’s robust prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
SON has a B grade for Stability and Sentiment. It is ranked #6 out of 20 stocks within the B-rated Industrial - Packaging industry.
Click here to access the additional SON ratings (Growth, Value, Quality, and Momentum).
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
ETN shares were trading at $238.14 per share on Friday morning, up $0.85 (+0.36%). Year-to-date, ETN has gained 54.48%, versus a 25.93% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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