Reasons To Hold On To Lincoln Electric (LECO) Stock For Now

Lincoln Electric Holdings Inc. (NASDAQ:LECO) has an impressive earnings history having outperformed the Zacks Consensus Estimate in the preceding four quarters, with an average beat of 5.45%. Further, the company is anticipated to perform well on both the top and bottom-line fronts in the second half of 2017 as its end markets continue to improve. Around 90% of revenues is now exposed to end sector applications which are trending positively. Additionally, its focus on commercializing innovative products, relatively stable pricing environment and cost-cutting initiatives, acquisitions will drive growth.

Lincoln Electric is a full-line manufacturer and reseller of welding and cutting products with products ranging from welding power sources, wire feeding systems, robotic welding packages, fume extraction equipment, consumables along with fluxes to regulators and torches used in cutting. It has a market capitalization of $6.2 billion and carries a Zacks Rank #3 (Hold). Here's why investors should hold on to the stock at present.

Earnings Estimate Revisions

Positive estimate revisions reflect optimism in the company’s potential, as earnings growth is often an indication of robust prospects (and stock price gains) ahead. Estimates for Lincoln Electric have moved up in the past 90 days, reflecting analysts’ bullish outlook. The earnings estimate has gone up 2% and 3% for 2017 and 2018, respectively.

The Zacks Consensus Estimate for earnings for fiscal 2017 reflects a year-over-year growth of 13.9% and for fiscal 2018 projects growth of 11.3%.

Further, the company’s long-term earnings growth rate of 10.5% is promising.

Return on Assets (ROA)

Lincoln Electric currently has a ROA of 11.9% while the industry's ROA is 6.0%. An above-average ROA denotes that the company is generating earnings by effectively managing assets.

Price Performance

The company outperformed the industry it belongs to, in the past year. The stock has gained 53.7% while the industry rose 36.7%.

Value Growth Momentum (VGM) Score

Lincoln Electric currently has a VGM score of B. Here V stands for Value, G for Growth and M for Momentum. The score is a weighted combination of these three scores (Value - B, Growth - A, Momentum - B). Such a score allows you to eliminate the negative aspects of stocks and select winners. The VGM Score of B along with some other key metrics makes the company a solid choice for investors.

Likely Earnings Beat in the Next Quarter

Our proven model shows that Lincoln Electric is likely to beat earnings in the next quarter because it has the right combination of two key ingredients — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), which have a significantly higher chance of beating earnings. The company’s Earnings ESP is +3.09% as the Most Accurate estimate of 96 cents is pegged higher than the Zacks Consensus Estimate of 93 cents. A positive ESP serves as a meaningful and leading indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Lincoln Electric’s Zacks Rank #3 and positive ESP makes us confident of an earnings beat.

Higher Inventory Turnover Ratio

In the trailing 12 months, the inventory turnover ratio for Lincoln Electric has been 5.5% compared with the industry’s level of 4.1%. A higher inventory turnover than the industry average means that inventory is sold at a faster rate, suggesting inventory management effectiveness.

Growth Drivers in Place

Lincoln Electric is poised to gain from focus on customers, and execution of the 2020 vision and strategy. Execution of 2020 strategy initiatives delivered solid profitability performance. The design and investment in unique solutions, leading application expertise, 600-plus technical sales team, 1000-plus automation team and focus on operational excellence continues to drive value in Lincoln Electric’s business.

The company has been consistently investing in welding automation. Welding automation is on growth path due to the shortage of welding labor and new, low-cost welding robots that provide productivity savings to customers. Over the past five years, the company acquired welding automation companies, for approximately $320 million. Lincoln Electric has completed the acquisition of Air Liquide (PA:AIRP)'s France-based subsidiary, Air Liquide Welding. The buyout will advance its 2020 Vision and Strategy and better position Lincoln Electric in the long term as a leader in key international markets.

Bottom Line

Investors might want to hold on to the stock at present as it has ample positive prospects of outperforming peers in the near future.

Stocks to Consider

Some better-ranked stocks in the industrial product space include Barnes Group Inc. (NYSE:B) , Graham Corporation (NYSE:GHM) and Lakeland Industries, Inc. (NASDAQ:LAKE) . All the three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Barnes Group has delivered an average earnings surprise of 11.6% in the trailing four quarters.

Graham Corporation has delivered an average earnings surprise of 93.7% in the trailing four quarters.

Lakeland Industries has delivered an average earnings surprise of 18.0% in the trailing four quarters.

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