Despite several economic and geopolitical challenges, the industrial sector is poised for significant growth in the foreseeable future, driven by high demand for industrial goods and services amid rapid industrialization and supportive government initiatives and investments. Further, the sector’s growth is bolstered by the rapid integration of digital technology.
Therefore, it could be wise to invest in fundamentally sound industrial stocks Balfour Beatty plc (BAFYY), PROG Holdings, Inc. (PRG), and Barloworld Limited (BRRAY), which have experienced significant growth in recent years and are positioned to maintain their momentum in the near future.
Let’s understand this in detail.
Decades of underinvestment in plants, people, and equipment rendered the industrial sector susceptible. Trade tensions and geopolitical conflicts between China and the West, and pandemic-related supply issues further exposed the sector’s weaknesses, leading to unprecedented disruptions for manufacturers in recent years.
However, these events prompted industrial companies and the federal government to strengthen domestic manufacturing. Priorities have shifted toward supporting revenue and protecting profit margins, resulting in significant changes in just-in-time shipping and supply chain operations.
President Biden signed the Bipartisan Infrastructure Law, committing over $185 billion to fund 6,900 projects aimed at restoring airports, roads, and bridges. The law also allocates $8 billion to the Infrastructure for Rebuilding America (INFRA) program in the next five years.
Furthermore, several technological advancements are poised to stimulate innovation in the industry. Technologies such as 3D printing, artificial intelligence, and big data analytics are being rapidly embraced within the sector, resulting in enhanced productivity, reduced operating costs, and improved margins.
According to a Business Research Company report, the global industrial machinery market is projected to grow at a CAGR of 6.7% and reach $708.30 billion by 2027. Moreover, investors’ interest in industrial stocks is evident from the Fidelity® MSCI Industrials Index ETF’s (FIDU) 30.2% returns over the past nine months.
Given the industry’s solid growth prospects, investing in fundamentally robust industrial stocks BAFYY, PRG, and BRRAY for solid returns seems wise.
Let’s explore the factors that could make these stocks worthwhile investments.
Balfour Beatty plc (BAFYY)
Headquartered in London, the United Kingdom, BAFYY finances, designs, develops, and maintains infrastructure. Its segments include Construction Services; Support Services; and Infrastructure Investments. The company’s services include civil engineering, ground engineering, rail engineering, critical national infrastructure management, and more.
On May 12, BAFYY announced the trading update for the period January 1, 2023, to date. The company reported that overall trade has been in line with expectations, and the Board continues to expect its 2023 profit from operations from its earnings-based businesses to be substantially in line with 2022.
By March-end, the company’s order book totaled £17 billion ($21.58 billion), compared to £17.40 billion ($22.08 billion) in December 2022. Notable additions in the fiscal first quarter include a £297 million ($377.03 million) seven-year contract for road maintenance in East Sussex, a $242 million design-build highways contract in North Carolina, and $230 million worth of data centers in the U.S. Northwest.
Also, on March 27, BAFYY unveiled its venture into the on-street Electric Vehicle (EV) charging market through Urban Fox, a strategic partnership with British EV charge point operator Urban Electric Networks. BAFYY aims to deploy 35,000 charge points nationwide over the next decade, which could transform its prospects and solidify its position in the sustainable infrastructure sector.
Over the past three years, BAFYY’s revenue grew at a CAGR of 1.4%. The company’s EBITDA and net income increased at CAGRs of 12.5% and 30.4%, respectively. Moreover, its EPS increased at a CAGR of 35% while total assets rose at a 1.9% CAGR during the same period.
For the year that ended December 31, 2022, BAFYY’s revenue increased 8.1% year-over-year to £8.93 billion ($11.34 billion). Its profit from operations rose 183.5% from the year-ago value to £275 million ($349.01 million). Also, the company’s profit for the year and EPS grew 106.5% and 120.2% year-over-year to £287 million ($364.33 million) and £0.47, respectively.
The consensus revenue estimate of $9.63 billion for the fiscal year (ending December 2023) reflects a 4.6% year-over-year improvement. Likewise, the consensus revenue estimate of $9.76 billion for the ongoing year indicates a 1.4% rise year-over-year. Over the past year, the stock has gained 33% to close the last trading session at $8.51.
BAFYY’s strong fundamentals are apparent in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
BAFYY has an A grade for Growth, Value, and Stability and a B for Momentum. It has ranked #7 in the B-rated 81-stock Industrial - Services industry.
In addition to the POWR Ratings I’ve just highlighted, you can see BAFYY’s ratings for Quality and Sentiment here.
PROG Holdings, Inc. (PRG)
PRG is a fintech holding company that provides payment options to consumers. It owns Progressive Leasing, providing lease-to-own solutions via in-store, app-based, and e-commerce platforms, and Vive Financial, an omnichannel provider of second-look revolving credit products.
On May 23, PRG introduced Build, a financial technology firm, offering the Build Credit Builder Account combining installment loans and secured savings accounts, enabling consumers to build credit and savings simultaneously. PRG aims for nationwide expansion by 2023, unlocking immense growth potential and benefiting the company and its customers.
PRG’s robust first-quarter earnings and the stability of its lease portfolio have prompted an upward revision of its earnings outlook for the year. The company anticipates adjusted net earnings for the full year to range from $99.50 million to $112.50 million, up from the previous guidance of $82.50 million to $103.50 million.
The projected EPS is expected to be $2.09 to $2.37, compared to the prior guidance of $1.69 to $2.12. Furthermore, adjusted EBITDA is forecasted to fall between $235 million and $255 million, reflecting an increase from the previous guidance of $215 million to $245 million.
Over the past three years, PRG’s revenue grew at a CAGR of 11.8%. Its EBITDA grew at a CAGR of 1.8%. Also, the company’s EBIT increased at a CAGR of 9.2% while normalized net income rose at a 5.5% CAGR during the same period.
For the first quarter that ended March 31, 2023, PRG’s operating profit increased 53.8% year-over-year to $76.08 million. Its adjusted EBITDA grew 38.9% from the year-ago value to $89.70 million. Furthermore, the company’s non-GAAP net earnings and non-GAAP EPS came in at $53.41 million and $1.11, up 67.4% and 94.7% year-over-year, respectively.
PRG’s revenue is expected to grow 1.3% year-over-year to $2.37 billion for the fiscal year ending December 2024. The company’s EPS for the same period is estimated to be $2.90, indicating an 8.4% year-over-year improvement. Moreover, the company topped its consensus EPS estimates in all four trailing quarters, which is impressive.
The stock has gained 90.2% over the past six months to close the last trading session at $32.12.
PRG’s positive outlook is reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system.
PRG has a B grade for Growth, Sentiment, and Quality. It is ranked #9 out of 81 stocks within the Industrial – Services industry.
Click here to access additional PRG ratings (Stability, Value, and Momentum).
Barloworld Limited (BRRAY)
BRRAY, based in Sandton, South Africa, serves as an industrial processing, distribution, and services company. Its segments include Equipment Southern Africa; Automotive; Ingrain; Equipment Eurasia; and Other. The company provides industrial equipment, services, and power systems for mining, construction, and power solutions.
Over the past three years, BRRAY’s EBIT grew at a CAGR of 3.2%. Its normalized net income grew at a CAGR of 3.1%. Moreover, its earnings from continuing operations increased at a CAGR of 99.9% during the same period.
For the six months that ended March 31, 2023, BRRAY’s revenue increased 12.9% year-over-year to R20.77 billion ($1.10 billion). The company’s operating profit from core trading activities rose 16.5% from the year-ago value to R2.10 billion ($111.42 million).
Furthermore, the company’s net profit and earnings per share from continuing operations stood at R1.10 billion ($58.04 million) and R575.90, compared to a loss and loss per share of R164 million ($8.68 million) and R82.80 in the prior year’s quarter, respectively.
The consensus revenue estimate of $2.17 billion for the fiscal year (ending September 2024) reflects a 2.1% year-over-year improvement. Shares of BRRAY have gained 5.2% over the past month to close the last trading session at $4.92.
BRRAY’s robust 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.
BRRAY has an A grade for Growth and a B for Value, Momentum, and Quality. It has ranked #6 within the same industry.
Click here to access additional BRRAY ratings for Stability and Sentiment.
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BAFYY shares were trading at $8.69 per share on Monday morning, up $0.18 (+2.12%). Year-to-date, BAFYY has gained 8.41%, versus a 16.85% 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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