Industrial Services Industry's Near-Term Prospects Bright
Zacks Investment Research | Apr 17, 2019 11:22PM ET
The Zacks Industrial Products sector, currently carries a Zacks Industry Rank #96, which places it at the top 38% of 256 Zacks industries. 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.
Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. In the past year, the industry’s earnings estimates for the current year have been revised upward by 4%.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms Sector, Lags S&P 500
The Industrial Services industry has outperformed its own sector over the past year. Over this period, the industry has gained 4.3% while the sector dipped 3.3%. Meanwhile, the S&P gained 6.8%.
One-Year Price Performance
Industrial Services Industry’s Valuation
On the basis of trailing 12-month EV/EBITDA ratio, which is a commonly used multiple for valuing Industrial Services companies, we see that the industry is currently trading at 10.8x compared with the S&P 500’s 11.1x and the Industrial Products sector’s trailing 12-month EV/EBITDA of 14.3x. This is shown in the charts below.
Enterprise Value/EBITDA (EV/EBITDA) TTM Ratio
Enterprise Value/EBITDA (EV/EBITDA) TTM Ratio
Over the last five years, the industry has traded as high as 37.9x and as low as 9.4x, with the median being at 12.3x.
Bottom Line
Improving overall economy and leading economic indicators instill optimism regarding the Industrial Services industry’s growth. Further, booming e-commerce sector, increased business spending will drive the industry. Efforts to reduce cost base will also deliver returns.
We are presenting two stocks with Zacks Rank #1 (Strong Buy), one with a Zacks Rank #2 (Buy) and two stocks with Zacks Rank #3 (Hold) that investors may take a look at.
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