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Baird lowers Lincoln Electric shares target due to segment challenges

EditorEmilio Ghigini
Published 07/10/2024, 08:01 AM

On Wednesday, Baird, an investment firm, adjusted its outlook on Lincoln Electric (NASDAQ: LECO) shares, a leading manufacturer of welding products. The firm reduced the price target to $213 from the previous $236 while maintaining an Outperform rating.

The revision follows a period of reassessment after Lincoln Electric's first-quarter results and subsequent guidance cut in May. Baird noted that the company's challenges, particularly in its Automation/Auto and off-Highway segments, are now well recognized by the market and reflected in the stock's valuation.

Baird's analysis suggests that some stabilization has been observed in May and June, as indicated by their distributor contacts. This could imply that Lincoln Electric's revised top-line guidance is likely to be sustained. The firm anticipates that investors will shift their attention to the company's profit margins.

The ability of Lincoln Electric to maintain or exceed a 17.5% margin – an increase of 40 basis points year over year and consistent with the first quarter – would likely be received well by the market.

The positive price-to-cost dynamic is expected to help Lincoln Electric mitigate the impact of lower volumes, according to Baird's commentary. This factor, along with the company's margin performance, will be key areas of focus for investors as they gauge the company's financial health in the current economic environment.

In other recent news, Lincoln Electric has revised its financial outlook for fiscal year 2024, now predicting a mid-single-digit decline in organic growth. This adjustment reflects a downturn in industrial activity and capital investment.

BofA Securities and Loop Capital have responded to these recent developments by maintaining their underperform and buy ratings on the company, respectively, while Baird continues to hold an outperform rating.

BofA Securities remains cautious, keeping its price target at $235.00, whereas Loop Capital has reduced its price target from $285 to $265 and Baird has lowered its price target from $252 to $236. Loop Capital has also revised its earnings per share estimates for Lincoln Electric for 2024 and 2025, reflecting the company's lowered growth outlook.

These adjustments come amidst broader challenges in the sector and potential downside risks to the industry's forecasts. Despite the challenges, Loop Capital sees potential benefits from strategic capital deployment, anticipated recovery in the European market, and the rollout of electric vehicle chargers.

Baird will be hosting Lincoln Electric CEO Steve Hedlund in Toronto to gain further insights into the company's current demand trends and the factors influencing its revised sales outlook.

InvestingPro Insights

In light of Baird's recent outlook adjustment on Lincoln Electric (NASDAQ:LECO), current data from InvestingPro provides additional context for investors considering the company's financial health and market position. With a market capitalization of $10.59 billion and a P/E ratio that has slightly decreased to 19.28 in the last twelve months as of Q1 2024, Lincoln Electric presents a stable investment profile. Notably, the company's revenue growth of 6.67% during the same period demonstrates its capacity to expand despite broader market challenges.

InvestingPro Tips highlight Lincoln Electric's historical reliability, with a perfect Piotroski Score of 9 indicating strong financial health. Additionally, the company's consistent dividend payments over the past 51 years, including 27 years of consecutive increases, reflect a commitment to shareholder returns. This is particularly relevant given the recent price drop of 22.66% over the past three months, which may present a buying opportunity for value investors. For those interested in exploring further, InvestingPro offers additional tips on Lincoln Electric, which can be accessed with a special discount using the coupon code PRONEWS24 for up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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