Nyse Order Imbalance 49498.0 Shares On Sell Side

Honeywell International Inc. HON has been benefiting from strength in its commercial aviation aftermarket business, driven by solid demand in the air transport and business aviation markets. In the third quarter of 2024, its commercial aviation aftermarket sales increased 8% year over year. Also, solid momentum in the commercial aviation original equipment business, backed by an improvement in build rates and an increase in air transport hours, has been favorable. In the third quarter, sales from this business grew 10% year over year.

Robust momentum in HON’s defense and space business, driven by stable international and U.S. spend volumes has also been driving its Aerospace Technologies segment’s performance. In the third quarter, sales from the business surged 18% year over year. Exiting the third quarter, the company’s overall backlog grew 10% year over year to $34 billion. For 2024, it expects overall revenues to be in the range of $38.6-$38.8 billion, with organic revenues expected to be up 3-4% on a year-over-year basis.

The company intends to strengthen and expand its businesses through acquisitions. In October 2024, the company closed the acquisition of Civitanavi Systems S.p.A. for about €200 million ($217 million) to boost its portfolio of aerospace navigation solutions. Also, in September, it acquired CAES Systems from private equity firm Advent. The transaction will augment its defense technology offerings across various domains, including land, sea, air and space.

Apart from this, in June, it acquired Carrier’s Global Access Solutions business for an all-cash deal of $4.95 billion. This acquisition will position HON to become a leading provider of security solutions for the digital age. Acquisitions had a contribution of 2.1% to the company’s sales in the third quarter.

HON remains committed to rewarding its shareholders through dividend payouts and share buybacks. For instance, in the first nine months of 2024, it paid out dividends of $2.16 billion and repurchased shares worth $1.2 billion. Also, the quarterly dividend rate was hiked by 5% in September 2024.

HON Stock’s Price Performance

In the past six months, this Zacks Rank #3 (Hold) company’s shares have gained 11.8% against the industry’s 7.7% decline.

Headwinds for HON

The company has been witnessing weakness in the warehouse and workflow solutions businesses due to lower demand for projects, which has been affecting the Industrial Automation segment's performance. Also, the weak demand for its products and solutions within the sensing and safety technologies business is worrisome. In third-quarter 2024, the Industrial Automation segment’s sales declined 5% on a year-over-year basis.

Also, high debt levels remain a major concern for the company. For instance, Honeywell exited the third quarter with long-term debt of $25.9 billion, higher than $16.6 billion at 2023-end. This increase in its debt level was primarily attributable to the funds raised for the Civitanavi Systems, Global Access Solutions and CAES acquisitions. Considering its high debt level, cash and cash equivalents of $10.6 billion do not look impressive.

Key Picks

Some better-ranked stocks from the same space are presented below.

Federal Signal Corporation FSS presently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

FSS delivered a trailing four-quarter average earnings surprise of 11.8%. In the past 60 days, the Zacks Consensus Estimate for Federal Signal’s 2024 earnings has increased 3.1%.

PDD Holdings Inc. PDD has a Zacks Rank of 2 currently. PDD delivered a trailing four-quarter average earnings surprise of 41.1%. In the past 60 days, the Zacks Consensus Estimate for its 2024 earnings has increased 0.5%.

RBC Bearings Incorporated RBC presently carries a Zacks Rank of 2. RBC delivered a trailing four-quarter average earnings surprise of 2.5%. In the past 60 days, the Zacks Consensus Estimate for its 2024 earnings has increased 2.2%.

Zacks Investment Research

Amcor plc AMCR announced that it entered a definitive merger agreement with Berry Global Group, Inc. BERY. This deal boosts AMCR’s growth strategy by focusing the company's portfolio on faster growing, better margin categories.

Benefits of Amcor-Berry Global Deal

The deal will bring together two highly complementary businesses, combining Amcor's global flexibles and regional containers businesses with Berry Global's regional flexibles, and global containers and closures businesses. It will create a global leader in consumer packaging solutions with remarkable innovation capabilities and scale.

Customers will get a broader flexible film and converted film offering, as well as more sustainable solutions that promote circularity and reduce carbon footprint. The merged company will have a scaled containers and closures business, and a unique global healthcare portfolio.

Amcor will have a strengthened position in high-growth, high-value categories, including Healthcare, Protein, Pet Food, Liquids, Beauty & Personal Care, and Food Service.

Amcor currently estimates $650 million in benefits from identified costs, growth and financial synergies by the end of the third year of closing. The companies expect additional $280 million of one-time cash benefits from working capital efficiencies, which will offset around $280 million of expected pre-tax costs to achieve synergies.

AMCR anticipates net leverage of 3.3X at the closure of the transaction, with a path to de-leverage below 3.0X during the first full year.

Financial Details of AMCR’s Merger Deal With Berry Global

Berry Global’s shareholders will receive 7.25 Amcor shares for each BERY share held upon closing.

AMCR will hold approximately 63% of the combined company, whereas Berry Global will own 37%.

The companies will have combined revenues of $24 billion and adjusted EBITDA of $4.3 billion. The combined entity will service customers in more than 140 countries through around 400 production facilities.

The transaction is expected to close in the middle of calendar year 2025, subject to closing approvals.

Amcor’s Share Price Performance

In the past year, AMCR shares have gained 11.1% compared with the industry’s 25.3% growth.

AMCR’s Zacks Rank & Stocks to Consider

The company currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks from the Industrial Products sector are Federal Signal Corporation FSS and RBC Bearings Incorporated RBC. Both these companies have a Zacks Rank #2 (Buy) at present. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Federal Signal has an average trailing four-quarter earnings surprise of 11.8%. The Zacks Consensus Estimate for FSS’s 2024 earnings is pinned at $3.34 per share, which indicates year-over-year growth of 29.5%. The company’s shares have gained 30.4% in a year.

The Zacks Consensus Estimate for RBC Bearings’ fiscal 2025 earnings is pegged at $9.80 per share. The company has a trailing four-quarter average earnings surprise of 2.5%. RBC shares have gained 33.8% in a year.

Zacks Investment Research

ITT Inc. ITT has been benefiting from the strong demand for its short-cycle product categories, driven by strength in pump projects and the Habonim valves business. Solid momentum in the aftermarket business, along with the acquisition of Svanehøj, is driving the Industrial Process segment.

Growth in component and connector sales within the aerospace and defense markets is aiding the Connect and Control Technologies segment. Also, the acquisitions of kSARIA and Micro-Mode augur well for the segment. In third-quarter 2024, revenues from Industrial Process and Connect and Control Technologies segments increased 19.3% and 12.6%, respectively.

The company intends to strengthen and expand its businesses through acquisitions. In September 2024, ITT acquired kSARIA Parent, Inc. The acquisition will enhance its portfolio of connectivity solutions for the defense and aerospace end markets, technological capabilities and market reach, thereby driving growth and operational efficiency.

Also, in January 2024, it acquired Svanehøj for approximately $395 million. The inclusion of Svanehøj’s portfolio of highly engineered flow solutions expanded its customer offerings and boosted its position in the marine pumps industry. The acquisitions of Svanehøj and kSARIA contributed 7% to the company’s sales growth in third-quarter 2024.

ITT remains committed to increasing shareholders’ value through dividend payments and share repurchases. For instance, during the first nine months of 2024, ITT paid out dividends of $78.7 million and repurchased shares worth $104 million. Also, in 2023, it paid dividends of $95.8 million and repurchased shares worth $60 million. The quarterly dividend rate was hiked by 10% in February 2024.

ITT’s Price Performance

3M Company’s MMM shares have gained 23.4% over the past six months, outperforming the S&P 500’s growth of 10.4% and the Zacks Diversified Operations industry’s decline of 9.4%. The diversified technology company has also outperformed industry players like Honeywell International Inc. HON and Federal Signal Corporation FSS, which have returned 12% and 2.1%, respectively, over the same time frame.

MMM Stock’s Six-Month Price Performance

Closing at $129.79 in the last trading session, the stock is trading below its 52-week high of $141.34 but significantly higher than its 52-week low of $75.65. The company’s impressive performance can be largely attributed to its strong foothold and improving conditions in the transportation, industrial adhesives, roofing granules and electrical markets.

Factors Favoring the Company

3M’s third-quarter 2024 results indicated decent year-over-year growth, with adjusted revenues rising 1.5% to $6.1 billion, driven by solid momentum in the Safety and Industrial segment. Solid momentum in the industrial adhesives and tapes end markets, driven by an increase in the sales of bonding solutions for electronic devices, has been driving the segment’s performance. The segment’s organic sales improved 1% year over year in the third quarter.

The company’s Transportation and Electronics segment has also been benefiting from strength in the commercial branding and transportation end markets. Solid electronics demand, backed by an increase in production volume, by electronics original equipment manufacturer (OEM) customers is proving beneficial for the segment. However, weakness in the automotive electrification market due to a decline in automotive OEM build rates remains a concern. The segment’s adjusted organic revenues grew 2% in the third quarter.

Backed by strength across its businesses, the company provided a stable outlook. For 2024, it expects total adjusted organic sales to grow approximately 1% on a year-over-year basis.

The company has been undertaking restructuring actions that are intended to lower operational costs and boost margins and cash flow in the long term. These include streamlining the geographic footprint, simplifying the supply chain and optimizing manufacturing roles to align with production volumes. In the third quarter, these actions, together with strong organic volume and productivity, raised 3M’s adjusted operating margin by 140 basis points year over year to 23%.

3M is committed to rewarding its shareholders through dividend payments and share buybacks. In the first nine months of 2024, it paid dividends worth $1.6 billion and repurchased shares for $1.1 billion. Exiting the third quarter, the company had $3.1 billion remaining under the share repurchase program. In February 2024, it hiked its quarterly dividend by 1%.

Better-Than-Industry Returns of MMM

3M’s trailing 12-month return on equity (ROE) is indicative of its growth potential. ROE for the trailing 12 months is 104.7%, much higher than the industry’s 31.2%. This reflects the company’s efficient usage of shareholder funds.

Estimate Revision Trend

Earnings estimates for 2024 have increased 0.7% to $7.27 per share over the past 60 days, while the same for 2025 has inched up 0.4% to $7.87. Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

A Few Near-Term Concerns Prevail

3M has been grappling with persistent weakness in the Consumer segment due to soft consumer discretionary spending. The segment’s revenues declined 1.2% in the third quarter, following a 2.4% decrease in the previous quarter. There was particular weakness in the packaging & expression, home & auto care and consumer safety and well-being businesses. It expects consumer retail discretionary spending on hardline goods to remain muted for the rest of the year, which is likely to hurt its overall performance.

MMM’s high debt level remains a concern for its profitability. Exiting third-quarter 2024, the company’s long-term debt was high at $11.3 billion. Its short-term borrowings and current portion of long-term debt totaled $1.9 billion. Also, interest expenses in the first nine months of 2024 were $939 million, up 64% on a year-over-year basis. It’s worth noting that 3M’s long-term debt-to-capital ratio is 70.7%, much higher than the industry’s 26.5%.

The company has also been subject to several litigations, including earplug lawsuits. It has committed substantial funds to resolve these disputes as ongoing litigation might lead to additional expenses.

Stretched Valuation Remains an Overhang for 3M

In terms of valuation, MMM’s forward 12-month price-to-earnings (P/E) is 16.64X, a premium to its industry average of 15.05X. This indicates that investors will be paying a higher price than the company's expected earnings growth compared with its peers. Also, the stock is overvalued compared with its peer, Griffon Corporation GFF, which is trading at 12.99X.

Summing Up

Despite 3M’s several upsides and robust share price returns, the near-term challenges, such as weakness in the retail market, high debt level and premium valuation, are limiting this Zacks Rank #3 (Hold) company’s prospects. While current shareholders should hold their positions, new investors should wait for the stock to retract some of its recent gains and provide a better entry point.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Zacks Investment Research

Markel Group Inc. MKL shares have gained 16.5% in the year-to-date period against the industry’s decline of 7%. With a market capitalization of $21.29 billion, the average volume of shares traded in the last three months was 0.03 million.

MKL Outperforms Industry YTD

Earnings of Markel Group grew 46.2% in the last five years, better than the industry average of 14.7%. MKL has a solid surprise history. It surpassed earnings estimates in two of the last four quarters while missing in the other two, the average being 35.42%.

MKL Trading Above 50-Day Moving Average

Currently priced at $1,655.36, this Zacks Rank #3 (Hold) stock is trading above its 50-day and 200-day simple moving average (SMA) of $1,574.64 and $1,546.01, respectively, indicating solid upward momentum. SMA is a widely used technical analysis tool to predict future price trends by analyzing historical price data.

Markel Group’s Favorable Return on Capital

MKL’s return on invested capital (ROIC) has increased every year. This reflects MKL’s efficiency in utilizing funds to generate income. ROIC in the trailing 12 months was 7.5%, higher than the industry average of 3.5%.

Factors Benefiting MKL Stock

The Zacks Consensus Estimate for Markel Group for 2025 earnings per share and revenues indicates an increase of 11.9% and 6.2%, respectively, from the corresponding 2024 estimates.

MKL has been generating improved premiums. An improvement in new business volume, strong retention levels, continued increases in rates and expanded product offerings should help the insurer retain the momentum.

Investment income should continue to benefit from an improving rate environment, higher interest income on cash equivalents, fixed maturity securities and short-term investments due to higher yields.

Markel Group considers strategic buyouts a prudent approach to ramp up its growth profile. Acquisitions have helped the company enhance its surety capabilities, ramp up Markel Ventures’ revenues and expand its reinsurance product offerings. The insurer has been pursuing acquisitions to achieve profitable growth in insurance operations and create additional value on a diversified basis in Markel Ventures’ operations.

Higher revenues at construction services and transportation-related businesses due to a combination of increased demand, higher prices and growth, as well as a rise in production at one of the equipment manufacturing businesses, are expected to boost operating revenues. The increase also reflected a full-year contribution from Metromont.

Distribution of Wealth

Banking on a strong capital position, the company engages in share buybacks, a prudent way to distribute wealth to its shareholders. However, it presently prefers to invest in organic growth initiatives for its Insurance business. The company has a share repurchase program authorized by the board to buy back up to $750 million of shares. As of Sept. 30, 2024, $332.1 million remained available for repurchases under the program. Also, given its solid cash position of $3.9 billion, the company should not face any difficulty in meeting short-term obligations.

MKL Shares are Affordable

Markel Group is trading at a discount compared with the industry average. It presents a compelling investment opportunity with its attractive forward 12-month price-to-book ratio of 1.29X, lower than the industry average of 4.30X.

Risks for Markel Group

However, Markel Group is exposed to catastrophe loss, inducing volatility in underwriting results. Exposure to cat loss always remains a concern, given its unprecedented nature. Also, the company has been experiencing an increase in operating expenses due to higher losses and loss adjustment expenses, underwriting, acquisition and insurance expenses. MKL should strive to ensure that growth in total revenues outpaces the rise in expenses. Otherwise, the operating margin is likely to suffer.

Key Picks

Investors interested in the other conglomerates may look at some better-ranked players like Hitachi Ltd. HTHIY, Federal Signal Corporation FSS and The Koninklijke KPN NV KKPNF. While Hitachi sports a Zacks Rank #1 (Strong Buy), Federal Signal and The Koninklijke carry a Zacks Rank #2 (Buy) each at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Hitachi’s earnings surpassed estimates in each of the last four quarters, the average earnings surprise being 303.64%. In the year-to-date period, HTHIY stock has surged 72.6%.

The Zacks Consensus Estimate for HTHIY’s 2024 and 2025 earnings indicates 16.4% and 24.8% year-over-year growth, respectively.

Federal Signal’s earnings surpassed estimates in each of the last four quarters, the average earnings surprise being 11.81%. In the year-to-date period, FSS stock has jumped 20.4%.

The Zacks Consensus Estimate for FSS’ 2024 and 2025 earnings indicates 29.4% and 12% year-over-year growth, respectively.

The Zacks Consensus Estimate for The Koninklijke’s 2024 and 2025 earnings indicates 29.4% and 12% year-over-year growth, respectively. In the year-to-date period, KKPNF stock has gained 9%.

The Zacks Consensus Estimate for KKPNF’s 2024 and 2025 earnings indicates 29.4% and 12% year-over-year growth, respectively.

Zacks Investment Research

For Immediate Release

Chicago, IL – November 11, 2024 – Today, Zacks Equity Research like PDD Holdings Inc. PDD and Federal Signal Corp. FSS

Industry: Diversified Operations

Link: https://www.zacks.com/commentary/2367201/2-diversified-operations-stocks-to-gain-on-promising-industry-trends?art_rec=quote-stock_overview-zacks_news-ID01-txt-2367201

The Zacks Diversified Operations industry is poised to benefit from strength across aerospace, defense, and oil & gas industries. Growth in the commercial aviation sector and solid demand across medical and life science end markets have been driving the performances of the industry participants. Higher infrastructure development, product innovation efforts and technological advancements in business operations have been acting as other tailwinds.

However, challenges in the manufacturing sector and supply-chain issues have been weighing on the performances of some industry players. PDD Holdings Inc. and Federal Signal Corp. are a couple of stocks poised to take advantage of the buoyancy in the industry.

About the Industry

The Zacks Diversified Operations industry includes companies that operate in various end markets, including oil and gas, industrial, electronics, power, aviation, technology, finance, healthcare, chemical, non-residential construction and transportation. Such companies manufacture and provide equipment and solutions, including bioprocessing products, molecular testing-related products, gas and steam turbines, generators, commercial jet engines and engineered fluid-process equipment.

Industry players also provide related services to a large customer base. A few companies offer services in the agriculture, marine and telecommunications markets, and are engaged in providing environmental and safety solutions. The diversified market operators have a vast global presence, with exposure in the United States, Japan, India, China, Canada and other countries.

Major Trends Shaping the Future of the Diversified Operations Industry

Strength in Aerospace & Defense Markets: The prospects of multi-sector companies are closely linked to the operating conditions of end markets. Some factors that currently favor the industry are strong demand from the defense and governmental sectors, higher exploration activities in the oil and gas industry, and infrastructure development. Industry players with exposure in the commercial aviation markets are poised to gain from healthy growth in air transport flight hours. Also, solid demand for several products and equipment in the medical and life science markets bode well for some industry participants.

Investments in Innovation & Technological Advancements: The industry players’ constant focus on innovation, product upgrades and the development of products to stay competitive in the market should drive growth. With the gradual development of business models and cutting-edge technologies, several industry players have been banking on digitizing their business operations. Digitization enables industry participants to boost their competitiveness through enhanced operational productivity, product quality and better cost management.

Weakness in the Manufacturing Sector: Persistent weakness in the manufacturing sector has been denting demand in the industry. Per the Institute for Supply Management’s (“ISM”) report, the Manufacturing Purchasing Manager’s Index touched 46.5% in October, down from 47.2% in September and August. A figure less than 50% indicates a contraction in manufacturing activity. After breaking a contraction streak of 16 months by growing in March, the manufacturing sector contracted for the seventh consecutive month in October. Also, the New Orders Index remained in the contraction territory for the seventh consecutive month, registering 47.1% in October.

Supply-Chain Disruptions: Lately, supply-chain disruptions, especially related to the availability of electrical and electronic components, have been of concern to industry participants. This is evident from the latest ISM report’s Supplier Deliveries Index, which reflected slower deliveries for the fourth consecutive month in October. Supply-chain issues, if not controlled, might hinder growth of diversified operation companies, going forward.

Zacks Industry Rank Suggests Strong Prospects

The Zacks Diversified Operations industry, housed within the broader Zacks Conglomerates sector, currently carries a Zacks Industry Rank #61. This rank places it in the top 24% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates robust prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of the positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are keeping more faith in this group's earnings growth potential. The industry’s earnings estimates for the current year have increased 14.4% in the past year.

Given the bullish near-term prospects of the industry, we will present a couple of stocks that you may want to consider for your portfolio. However, it is worth taking a look at the industry’s shareholder returns and current valuation first.

Industry Lags the S&P 500

Over the past year, the Zacks Diversified Operations industry has underperformed the S&P 500 composite. The industry has risen 13.7% compared with the S&P 500 Index’s 36.6% growth.

Industry's Current Valuation

On the basis of forward P/E (F12M), which is a commonly used multiple for valuing diversified operations stocks, the industry is currently trading at 15.42X compared with the S&P 500’s 22.43X.

Over the past five years, the industry has traded as high as 38.15X and as low as 15.42X, with a median of 20.62X.

2 Diversified Operations Stocks to Buy

PDD Holdings: Based in Dublin, Ireland, it is a multi-national commerce group that operates a portfolio of businesses. PDD Holdings’ strength in its e-commerce business model is a major positive. Solid momentum in the Pinduoduo platform on the back of a wide range of product offerings, which include agricultural produce, apparel, shoes, mother and childcare products, food and beverage, electronic appliances, furniture, and household goods, is primarily driving PDD Holdings’ e-commerce business growth. PDD’s strengthening Temu platform, which is an innovative online marketplace capitalizing on online ads, social media, coupon codes, and games to attract and retain users, is another positive.

Estimates for PDD’s 2024 earnings have improved 0.5% in the past 60 days. It surpassed earnings estimates in each of the last four quarters, delivering a surprise of 41.1%, on average. Shares of this Zacks Rank #2 (Buy) company have increased 16.2% in the past year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Federal Signal: This Oak Brook, IL-based company provides a suite of products and integrated solutions for municipal, governmental and commercial customers. Federal Signal is well-poised to benefit from robust aftermarket demand and strong order intake, supported by effective pricing actions. Growth in demand for public safety equipment, road-marking and line-removal products and services has been driving its performance.

Shares of this Zacks Rank #2 company have jumped 38.9% over the past year. The Zacks Consensus Estimate for 2024 earnings has been revised 1.2% upward over the past 60 days. It beat estimates in each of the last four reported quarters, delivering an average earnings surprise of 11.8%.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.

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