Despite several macroeconomic headwinds, the manufacturing sector is anticipated to remain firm and witness significant growth, thanks to technological advancements and lucrative government investments. Given this backdrop, quality stocks Modine Manufacturing (MOD), Powell Industries (POWL), and Superior Industries International (SUP) could be worth buying right now. Read on….
The manufacturing sector, which accounts for 10.7% of the total Gross Domestic Product (GDP) of the United States, was marred by several macroeconomic factors, such as high prices, increasing interest rates, and regional banking collapses.
Despite such headwinds, the sector is poised to remain steady on the backs of increasing adoption of technological innovation and lucrative Federal initiatives. Against this backdrop, let us probe into some manufacturing stocks Modine Manufacturing Company (MOD), Powell Industries, Inc. (POWL), and Superior Industries International, Inc. (SUP) now.
Headwinds, such as high material costs, constrained supply, workforce shortages, persistent interest rate increases, and a slowdown in exports, are anticipated to be some of the hindrances to the positive growth trajectory of the manufacturing sector.
Despite such headwinds, manufacturing growth is forecasted to be driven by rising market demand. The industry is expected to grow by 1.5% annually over the next five years (2023 to 2027).
The issue of labor shortages across the manufacturing sector of the American economy could be solved by investing in workforce training, offering attractive wages and benefits, and leveraging technology such as AI and machine learning, robotics, and the Internet of Things (IoT).
Furthermore, $50 million in funding was announced by the Biden-Harris Administration to make smart manufacturing technologies and high-performance computing more accessible to SMMs, allowing them to increase production efficiency and secure America's global manufacturing leadership.
Against this backdrop, fundamentally strong stocks MOD, POWL, and SUP could be solid buys now.
Modine Manufacturing Company (MOD)
MOD provides engineered heat transfer systems and heat transfer components for use in on and off-highway Original Equipment Manufacturer (OEM) vehicular applications. It operates through Climate Solutions and Performance Technologies segments.
On April 25, MOD announced the launch of the EVantage Fuel Cell Stack Cooling Package (FC-SCP). The FC-SCP is purpose-built to meet the unique needs and low conductivity requirements of commercial fuel cell applications. As the demand for zero-emission vehicles soar, this new launch could fulfill the need for reliable and energy-efficient thermal management solutions.
MOD's revenue has grown at 3.1% and 2.2% CAGRs over the past three and five years, respectively. Moreover, its EBITDA and EBIT have grown at 12.5% and 32% CAGRs over the past three years, respectively.
In terms of forward EV/Sales, MOD is trading at 0.64x, which is 42.4% lower than the 1.11x industry average. Likewise, its forward EV/EBIT of 9.91x is 22.2% lower than the 12.7x industry average.
For the fiscal third quarter that ended December 31, 2022, MOD's net sales increased 11.5% year-over-year to $560 million. The company's gross profit increased 30.8% year-over-year to $97.60 million. Its adjusted EBITDA rose 35.6% year-over-year to $53.30 million. In addition, the net earnings attributable to MOD came in at $24.50 million, while adjusted earnings per share came in at $0.48.
For the fiscal year 2023, the company expects its net sales to increase between 6% and 12%. Also, it expects its adjusted EBITDA to come between $190 million and $200 million.
MOD's revenue for the fiscal first quarter ending June 2023 is expected to increase 5.7% year-over-year to $571.77 million. Its EPS for the same quarter is expected to increase 43.8% year-over-year to $0.46. It surpassed its consensus EPS estimates in each of the trailing four quarters, which is impressive.
Over the past year, the stock has gained 164% to close the last trading session at $20.70. Over the past six months, it had gained 26.1%.
MOD's POWR Ratings reflect this positive outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
MOD has an A grade for Growth and Value and a B for Momentum and Sentiment. Moreover, it is ranked #10 in the A-rated 60-stock Auto Parts industry.
Beyond what we have mentioned above, one can see the other ratings of MOD for Stability and Quality here.
Powell Industries, Inc. (POWL)
POWL designs, develops, manufactures, sells, and services custom-engineered equipment and systems to distribute, control, and monitor electrical energy. The company's principal products include integrated power control room substations, electrical houses, medium-voltage circuit breakers, and motor control centers.
In terms of forward EV/Sales, POWL is trading at 0.61x, 61% lower than the industry average of 1.57x. Its forward Price/Sales multiple of 0.79 is 38.8% lower than the 1.29 industry average.
POWL's revenue has grown at 3.1% and 2.2% CAGRs over the past three and five years, respectively. Moreover, its EBITDA and EBIT have grown at 12.5% and 32% CAGRs over the past three years, respectively.
On January 31, 2023, POWL announced that its board of directors had approved a 1% increase to the quarterly dividend on its common stock to $0.2625 per share, equating to an annualized dividend of $1.05 per share. The dividend was paid to the shareholders on March 15, 2023. Its annual dividend of $1.05 yields 2.62% on prevailing prices. POWL's four-year average dividend yield is 3.60%.
POWL's revenues increased 19% year-over-year to $126.86 million in the fiscal first quarter that ended December 31, 2022. The company's operating income is $1.09 million for the same quarter compared to a negative $4.29 million for the quarter that ended December 31, 2021.
Net income came in at $1.16 million compared to the prior-year quarter net loss of $2.85 million, while its earnings per share came in at $0.10, from the year-ago quarter loss per share of $0.24.
POWL's revenue is expected to rise 14% year-over-year to $154.45 million for the fiscal third quarter ending June 2023. The company's EPS for the same quarter is expected to increase 150% year-over-year to $0.33. Additionally, POWL topped consensus EPS estimates in three of the four trailing quarters and revenue estimates in all of the trailing four quarters.
Shares of POWL have gained 92.4% over the past year to close the last trading session at $39.29. It has also gained 61.7% over the past six months.
POWL's strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
The stock has an A grade for Growth and a B for Value, Quality, and Sentiment. Within the A-rated Industrial-Machinery industry, it is ranked #2 out of 78 stocks.
Click here for the additional ratings of POWL (Stability and Momentum).
Superior Industries International, Inc. (SUP)
SUP designs, manufactures, and sells aluminum wheels to original equipment manufacturers and aftermarket distributors in North America and Europe. It offers its products under the ATS, RIAL, ALUTEC, and ANZIO brand names.
In terms of forward EV/Sales, SUP is trading at 0.46x is 58.7% lower than the 1.11x industry average. Its forward EV/EBITDA multiple of 3.98x is 57.2% lower than the 9.30x industry average.
SUP's revenue has grown at 6.1% and 8.2% CAGRs over the past three and five years, respectively. Moreover, its EBITDA and EBIT have grown at 5.7% and 13.7% CAGRs over the past three years, respectively.
For the fiscal fourth quarter that ended December 31, 2022, SUP's net sales increased 9.2% year-over-year to $402.10 million. The company's net income came in at $16.50 million, compared to a net loss of $3.90 million in the year-ago quarter.
Its adjusted EBITDA increased 53.7% year-over-year to $57.50 million. Additionally, its earnings per share came in at $0.25, compared to the loss per share of $0.48 in the prior-year quarter.
For the full-year 2023, the company expects its net sales to come between $1.55 billion and $1.67 billion. Its adjusted EBITDA is expected to come between $170 million and $200 million.
SUP's revenue for the fiscal second quarter ending June 2023 is expected to increase 2% year-over-year to $440.07 million. Its EPS for the same quarter is expected to increase 71.4% year-over-year to $0.12. Moreover, SUP has topped consensus EPS and revenue estimates in three of the four trailing quarters.
Over the past six months, the stock has gained 13.6% to close the last trading session at $4.86. Over the past year, the stock gained 50%.
It is no surprise that SUP has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
SUP has an A grade for Growth and a B for Value and Sentiment. It is ranked #11 in the Auto Parts industry.
In addition, we have also given SUP grades for Momentum, Stability, and Quality. To access the additional ratings of SUP, click here.
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MOD shares were trading at $20.72 per share on Thursday morning, up $0.02 (+0.10%). Year-to-date, MOD has gained 4.33%, versus a 7.17% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy.Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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