Despite macroeconomic challenges, the industrial sector remained stable as a result of consistent demand. Therefore, quality industrial stocks Otis Worldwide Corporation (OTIS), Dover Corporation (DOV), and Graco Inc. (GGG) could be worth watching.
Efficiency and productivity of the machinery are improving as manufacturers adopt more cutting-edge technology like the Internet of Things (IoT), Artificial Intelligence (AI), and robotics.
AI in industrial machinery is expected to expand at a 25% CAGR until 2032. The increasing amount of complex data and the development of Industry 4.0 are driving the expansion of AI in the industrial machinery market.
In addition, increasing efficiency and implementation of modern manufacturing technology in expanding product creation capacities.
The industrial machinery market is expected to reach $708.30 billion by 2027, increasing at a CAGR of 6.7%. Rapid technological improvements in manufacturing industrial machinery stimulate innovation, leading to increased productivity, cheaper costs, and higher profits during the forecast period.
Investors’ interest in industrial stocks is evident from the Vanguard Industrials ETF’s (VIS) 10.9% returns over the past three months.
Take a detailed look at the stocks mentioned above:
Otis Worldwide Corporation (OTIS)
OTIS engages in the manufacturing, installation, and servicing of elevators and escalators in the United States, China, and internationally. The company operates in two segments: New Equipment and Service.
OTIS’ trailing-12-month ROTC of 39.10% is 457% higher than the industry average of 7.02%. Its trailing-12-month levered FCF margin of 21.44% is 308.7% higher than the industry average of 5.24%.
Over the last three years, OTIS’ dividend payouts have grown at 82.2% CAGR. OTIS’ four-year average dividend yield is 1.06%. Its forward annual dividend of $1.36 translates to a 1.54% yield.
OTIS’ total cost and expenses decreased 2.2% year-over-year to $2.84 billion for the fiscal first quarter that ended March 31, 2023. The company’s non-GAAP net income increased 3.4% year-over-year to $335 billion, while its non-GAAP EPS was $0.80, an increase of 5.3% from the prior-year period.
The consensus revenue estimate of $14.05 billion for the year ending December 2023 represents a 2.7% increase year-over-year. Its EPS is expected to grow 8.8% year-over-year to $3.45 for the same period. It has surpassed EPS estimates in all four trailing quarters. OTIS’ shares have gained 32.9% over the past nine months to close the last trading session at $88.08.
OTIS’ POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
OTIS has an A grade for Quality and a B for Sentiment. Within the A-rated Industrial - Machinery industry, it is ranked #33 out of 79 stocks. Click here for the additional POWR Ratings for Growth, Momentum, Value, Stability, and Quality for OTIS.
Dover Corporation (DOV)
DOV provides equipment and components, consumable supplies, aftermarket parts, software and digital solutions, and support services worldwide.
DOV’s trailing-12-month EBIT margin of 16.83% is 72.4% higher than the 9.76% industry average, while its trailing-12-month net income margin of 12.51% is 97.3% higher than the industry average of 6.34%.
DOV has paid dividends for 66 consecutive years. Over the last three years, DOV’s dividend payouts have grown at 1.01% CAGR. While DOV’s four-year average dividend yield is 1.57%, its forward annual dividend of $2.02 translates to a 1.35% yield.
During the fiscal first quarter ended March 31, 2023, DOV’s revenue increased marginally year-over-year to $2.08 billion. Its gross profit rose marginally year-over-year to $747.02 million, while its operating profit increased 5.1% year-over-year to $314.61 million. The company’s non-GAAP EPS came in at $1.94, up 2.1% year-over-year.
Street expects DOV’s revenue to increase 3.5% year-over-year to $8.80 billion for the year ending December 2023. Its EPS is expected to grow 6.3% year-over-year to $8.98 for the same period. It has surpassed EPS estimates in all four trailing quarters. Over the past nine months, the stock has gained 23.7% to close the last trading session at $150.13.
It’s no surprise that DOV has an overall B rating, equating to a Buy in our POWR Ratings system. It has a B grade for Stability, Momentum, and Quality. It is ranked #29 in the same industry.
Beyond what is stated above, we’ve also rated DOV for Value, Sentiment, and Growth. Get all DOV ratings here.
Graco Inc. (GGG)
GGG designs, manufactures, and markets systems and equipment used to move, measure, control, dispense, and spray fluid and powder materials worldwide. It operates through three segments: Industrial segment; Process segment; and Contractor segment.
GGG’s trailing-12-month net income margin of 22.44% is 253.9% higher than the 6.34% industry average, while its trailing-12-month ROTA of 19.20% is 272.5% higher than the industry average of 5.15%.
GGG has paid dividends for 33 consecutive years. Over the last three years, GGG’s dividend payouts have grown at 10.1% CAGR. While GGG’s four-year average dividend yield is 1.17%, its forward annual dividend of $0.94 translates to a 1.08% yield.
GGG’s net sales for the first quarter ended March 31, 2023, increased 7.2% year-over-year to $529.65 million. The company’s adjusted net earnings increased 27.5% year-over-year to $126.60 million. Its adjusted net EPS increased 29.8% year-over-year to $0.74.
Analysts expect GGG’s revenue to increase 4.8% year-over-year to $2.25 billion for the year ending December 2023. Its EPS is expected to grow 16.6% year-over-year to $3.07 for the same period. It has surpassed EPS estimates in all four trailing quarters. The stock has gained 44% over the past year to close the last trading session at $87.42.
GGG’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
It is ranked #32 in the same industry. It has a B grade for Stability, Sentiment, Quality and Momentum. To see additional GGG’s ratings for Value and Growth, click here.
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OTIS shares were trading at $86.91 per share on Thursday morning, down $1.17 (-1.33%). Year-to-date, OTIS has gained 11.82%, versus a 19.56% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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