Industrial technology is all about making production faster, simpler, and more efficient by using advanced engineering and manufacturing techniques. From designing machinery and equipment to analyzing production costs, this sector is rapidly evolving, fueled by rising demand for automation and the modernization of the production processes.
Given this momentum, investors could consider investing in fundamentally sound industrial machinery stocks such as Donaldson Company, Inc. (DCI), Tennant Company (TNC), and Flowserve Corporation (FLS), which are riding the wave of technological advancements.
The ongoing market rally, spurred by artificial intelligence (AI), is extending its reach beyond tech into industrial manufacturing and machinery. The fusion of AI with cloud computing and the Internet of Things (IoT) is propelling this sector forward, offering benefits like real-time data analysis, cost savings, and enhanced collaboration.
The impact is evident in the AI software segment of the industrial machinery market, which dominated in 2023 with a value of $1.29 billion and is poised to grow at an impressive CAGR of 24.1% through 2032.
As AI continues to advance, the industrial machinery sector is gearing up for a transformative leap driven by smarter decision-making, predictive maintenance, and automation. With the market expected to grow at a solid 7.5% CAGR from 2024 to 2032, the future looks bright for innovation in this space.
Industrial technology and machinery are driving innovation, making them attractive picks for investors seeking exposure in this sector. Companies in this space are developing cutting-edge solutions, from AI-driven machinery and IoT-enabled equipment to advanced material handling systems. With the rapid and steady growth in innovation, these companies are well-positioned to deliver significant returns.
To that end, let’s evaluate the fundamental aspects of the three Industrial - Machinery stocks mentioned above, starting with the third choice.
Stock #3: Flowserve Corporation (FLS)
FLS is a manufacturer and aftermarket service provider of comprehensive flow control systems. The company develops and manufactures precision-engineered flow control equipment integral to the movement, control, and protection of the flow of materials. It operates through two segments: Flowserve Pump Division (FPD) and Flow Control Division (FCD).
On July 23, FLS acquired intellectual property and in-process R&D from NexGen Cryogenic Solutions, Inc., a cryogenic LNG pump technology specialist based in Arizona. This move enhances the company’s decarbonization capabilities and aligns with its 3D growth strategy to diversify, decarbonize, and digitize.
On July 12, buoyed by its strong financial performance, FLS paid its shareholders a quarterly dividend of $0.21 per share.
The company pays an annual dividend of $0.84, which translates to a yield of 1.89% at the current share price. Its four-year average dividend yield is 2.26%. Moreover, its dividend payouts have increased at a CAGR of 1.5% over the past five years.
For the second quarter of 2024, which ended on June 30, FLS' sales increased 7.1% year-over-year to $1.16 billion, while its adjusted gross profit grew 14% from the year-ago value to $373.62 million. Its non-GAAP operating income stood at $144.43 million, up 27.9% year-over-year. The company’s non-GAAP net earnings amounted to $96.33 million or $0.73 per share, reflecting an increase of 41.3% and 40.4% year-over-year, respectively.
Analysts expect FLS’ revenue for the third quarter (ending September 2024) to increase 2.6% year-over-year to $1.12 billion, while its EPS for the same quarter is expected to grow 29.7% from the prior year to $0.65. Moreover, the company has consistently exceeded expectations, surpassing the consensus revenue and EPS estimates in each of the trailing four quarters.
Over the past nine months, the stock has gained 19.4%, closing the last trading session at $44.51.
FLS’ strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
FLS has a B grade for Growth, Value, and Sentiment. It is ranked #9 out of 78 stocks in the A-rated Industrial - Machinery industry. Click here to access the other FLS ratings for Momentum, Stability, and Quality.
Stock #2: Tennant Company (TNC)
TNC designs, manufactures, and markets floor-cleaning equipment worldwide. Its offerings include floor maintenance equipment, sustainable cleaning technologies, aftermarket parts, and repair services. The company’s products are available under various brands, such as Tennant, Nobles, Alfa Uma Empresa Tennant, IPC, Gaomei, and Rongen.
On August 6, the company declared a dividend of $0.28 per common share, payable on September 16, 2024, to shareholders of record on August 30, 2024. TNC pays an annual dividend of $1.12, which translates to a yield of 1.16% at the prevailing price levels. Its four-year average dividend yield is 1.30%. Also, it has a record of 51 years of consecutive dividend growth.
On May 3, TNC introduced its i-mop® Lite and i-mop® XL Plus scrubbers to Brazil, France, Portugal, and Spain. These advanced, mechanized cleaning solutions offer a more efficient alternative to traditional mop-and-bucket methods. The expansion reflects TNC's growing partnership with i-team Global and aims to target a broader customer base with innovative cleaning technologies.
In the fiscal second quarter that ended on June 30, 2024, TNC’s net sales increased 2.9% year-over-year to $331 million. Its gross profit grew 2.3% from the year-ago value to $142.70 million. The company reported adjusted EBITDA of $58.60 million, indicating a marginal growth from the prior-year quarter. In addition, its adjusted net income came in at $35.20 million, up 1.4% year-over-year.
According to the 2024 updated guidance, the company expects net sales to range from $1.28 billion to $1.31 million, with adjusted EBITDA between $205 million and $215 million. The adjusted EBITDA margin is expected to range from 16% to 16.5%, an increase from the prior range of 15.6% to 16.4%.
Street expects TNC’s revenue for the third quarter (ending September 2024) to increase 3.3% year-over-year to $314.80 million. Its EPS for the current quarter is expected to grow 14.2% from the previous year, settling at $1.53. In addition, the company has topped revenue and EPS in each of the trailing four quarters, which is promising.
The stock has gained 14.9% over the past nine months to close the last trading session at $96.02.
It’s no surprise that TNC has an overall rating of B, equating to a Buy in our POWR Ratings system. It also has a B grade for Value, Stability, and Quality. Out of 78 stocks in the same industry, TNC is ranked #6.
Beyond what is stated above, we’ve also rated TNC for Growth, Momentum, and Sentiment. Get all TNC ratings here.
Stock #1: Donaldson Company, Inc. (DCI)
DCI manufactures and sells filtration systems and replacement parts for diverse industries and advanced markets worldwide. The company operates through three segments: Mobile Solutions; Industrial Solutions; and Life Sciences.
On July 26, demonstrating its commitment to returning value to shareholders, the company declared the 68th consecutive quarterly dividend of $0.27 per common share. This dividend will be paid on August 28, 2024, to shareholders on record as of August 13, 2024.
With 28 years of consecutive dividend growth, DCI pays an annual dividend of $1.08, which translates to a yield of 1.52% at the current share price. Its four-year average dividend yield is 1.53%. Moreover, its dividend payouts have increased at a CAGR of 6.3% over the past three years.
On June 20, DCI introduced the Dual-Stage Jet, a new battery venting system design, at The Battery Show in Stuttgart, Germany. This advanced system is designed to address the higher demands of modern, complex batteries. The company anticipates that the launch will enhance its ability to cater to the expanding global EV market by offering an additional top-tier product to its customers.
In April, the company also agreed to acquire a 49% stake in Medica S.p.A, a leading provider of hollow fiber membrane filtration technology for medical applications and water purification.
DCI’s net sales for the fiscal third quarter that ended April 30, 2024, increased 6% year-over-year to $927.90 million. The company’s adjusted EBITDA rose 16.4% from the prior-year quarter to $173.60 million. In addition, its adjusted net earnings attributable to DCI came in at $113.50 million or $0.92 per share, up 21.1% year-over-year.
For the full year, the company expects EPS to be between $3.33 and $3.39, up from the prior forecast of $3.24 to $3.32. This compares to fiscal 2023 GAAP EPS of $2.90 and adjusted EPS of $3.04. Sales are anticipated to grow 4% to 6% year-over-year, with a 2% pricing benefit.
The consensus revenue estimate of $942.76 million for the fiscal fourth quarter (ended July 2024) represents a 7.2% increase year-over-year. The consensus EPS estimate of $0.89 for the ongoing quarter indicates a 13.9% improvement year-over-year. The company has an excellent earnings surprise history; it surpassed the consensus EPS estimates in each of the trailing four quarters.
DCI shares have surged 20.7% over the past nine months and 8.5% year-to-date to close the last trading session at $70.87.
DCI’s POWR Ratings reflect its promising outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has a B grade for Growth, Stability, and Quality. Within the same A-rated industry, DCI is ranked #2. Click here to access additional ratings for DCI (Value, Momentum, and Sentiment).
What To Do Next?
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DCI shares were trading at $71.57 per share on Thursday afternoon, up $0.70 (+0.99%). Year-to-date, DCI has gained 10.34%, versus a 11.67% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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