Dredging the Market for Winners: Three Heavy Machinery Stocks to Consider
This week, we use AAII’s A+ Investor Stock Grades to provide insight into three heavy machinery and vehicles stocks. Industrial stocks can provide some insight into the health of the economy. With potential interest rate cuts in 2024 from the Federal Reserve, should you consider the heavy machinery and vehicles stocks of Greenbrier Companies Inc. (GBX), Rev Group Inc. (REVG) and Wabash National Corp. (WNC)?
Heavy Machinery and Vehicles Stocks Recent News
In recent years, governments around the world have emphasized investment in the infrastructure sector for economic development such as building power plants, bridges, dams, roads and urban developments. The Infrastructure Investment and Jobs Act of 2021 is a $1.2 trillion five-year spending package for new projects and the revitalization of existing infrastructure in the U.S. Infrastructure initiatives are dependent on heavy machinery and vehicles, which are crucial for executing substantial tasks during construction.
Significant growth is anticipated in the global heavy machinery and vehicles market this year. Projections indicate an increase from $191.1 billion in 2023 to $205.8 billion in 2024, for a compound annual growth rate (CAGR) of 7.7%, according to a report by the Business Research Company. Looking ahead, the industry is expected to reach $271.2 billion by 2028, a 7.1% growth rate on average. Trends driving this growth include digital transformations in construction, efficiency improvements and the adoption of electric and hybrid construction equipment.
Electric equipment is gaining popularity in the heavy machinery and vehicles market due to its lower noise levels, instant response times and fewer components compared to diesel machines. Additionally, electric equipment is emission-free. Grand View Research predicts the size of the global off-highway electric vehicle market to reach $42.0 billion by 2030. The heavy machinery industry is also expanding its use of predictive maintenance, which utilizes sensors and data analytics to anticipate and prevent equipment failures. Predictive maintenance reduces downtime and lowers costs. The global predictive maintenance market is expected to reach $64.3 billion by 2030, according to Next Move Strategy Consulting.
Grading Heavy Machinery and Vehicles Stocks With AAII’s A+ Stock Grades
When analyzing a company, it is helpful to have an objective framework that allows you to compare companies in the same way. This is why AAII created the A+ Stock Grades, which evaluate companies across five factors that have been shown to identify market-beating stocks in the long run: value, growth, momentum, earnings estimate revisions (and surprises) and quality.
Using AAII’s A+ Stock Grades, the following table summarizes the attractiveness of three heavy machinery and vehicles stocks — Greenbrier Companies, Rev Group and Wabash National — based on their fundamentals.
AAII’s A+ Stock Grade Summary for Three Heavy Machinery and Vehicles Stocks
What the A+ Stock Grades Reveal
Greenbrier Companies Inc. (GBX) is a designer, manufacturer and marketer of railroad freight car equipment in North America, Europe and South America. It also manufactures marine barges. The company operates through three segments: manufacturing, maintenance services and leasing and management services. The manufacturing segment produces automotive railcar products. The maintenance services segment performs wheel and axle servicing and railcar maintenance and produces a variety of parts for the rail industry in North America. The leasing and management services segment operates a railcar leasing business in North America and offers management services such as software and services that include railcar maintenance management, fleet logistics and railcar accounting services.
Earnings estimate revisions offer an indication of how analysts view the short-term prospects of a firm. Greenbrier Companies has an Earnings Estimate Revisions Grade of B, based on a score of 75, which is positive. The grade is based on the statistical significance of its latest two quarterly earnings surprises and the percentage change in its consensus estimate for the current fiscal year over the past month and past three months.
Greenbrier Companies reported a positive earnings surprise of 31.1% for its first fiscal quarter of 2024 ending in November 2023, and in the prior quarter, it reported a negative earnings surprise of 8.5%. Over the last month, the consensus earnings estimate for the second fiscal quarter of 2024 has decreased from $0.863 to $0.860 per share due to three upward and two downward revisions. Over the last month, the consensus earnings estimate for fiscal-year 2024 ending in August has increased 9.8% from $3.757 to $3.943 per share, based on five upward revisions.
The components of the Growth Composite Score consider a company’s success in growing sales on a year‐over‐year and long‐term annualized basis and its ability to consistently generate positive cash from its core operations. The company currently has a Growth Grade of B, with a score of 68. The company has a five-year sales growth rate of 9.4% and has seen sales increase year over year for three consecutive years. Cash from operations has also been positive for two consecutive years.
Greenbrier Companies has a Momentum Grade of A, based on a score of 89. This means that it is very strong in terms of its weighted relative strength over the last four quarters. This score is derived from below-sector-median relative price strengths of –18.5% in the second-most-recent quarter and –14.7% in the fourth-most-recent quarter, offset by relative price strengths of 10.9% in the most recent quarter and 61.4% in the third-most-recent quarter. The scores are 80, 35, 96 and 46, sequentially from the most recent quarter. The weighted four-quarter relative price strength is 10.0%, which translates to a score of 89. The weighted four-quarter relative strength rank is the relative price change for each of the past four quarters, with the most recent quarterly price change given a weight of 40% and each of the three previous quarters given a weight of 20%.
The company has a Value Grade of A, based on a score of 86, which translates to deep value. Higher scores indicate a more attractive stock for value investors and thus a better grade. The Value Grade is the percentile rank of the average of the percentile ranks of the price-to-sales (P/S) ratio, price-earnings (P/E) ratio, price-to-book-value (P/B) ratio, price-to-free-cash-flow (P/FCF) ratio, shareholder yield and the ratio of enterprise value to earnings before interest, taxes, depreciation and amortization (EBITDA). The company has a price-earnings ratio of 14.3, a price-to-book ratio of 1.14 and an enterprise-value-to-EBITDA ratio of 7.8, ranking in the 41st, 36th and 39th percentiles, respectively.
Rev Group Inc. (REVG) is engaged in designing and manufacturing specialty vehicles and related aftermarket parts and services. The company operates through two segments: specialty vehicles and recreational vehicles. It provides customized vehicle solutions for applications, including essential needs for public services (ambulances and fire apparatus), commercial infrastructure (terminal trucks and industrial sweepers) and consumer leisure such as recreational vehicles (RVs). The recreational vehicles segment serves the RV market through the principal brands of American Coach, Fleetwood RV, Holiday Rambler RV and Renegade RV.
The company has a Value Grade of B, based on a score of 66, which is good value. The company has a rank of 21 for shareholder yield, 17 for the price-to-sales ratio and 32 for the enterprise-value-to-EBITDA ratio. The company has a shareholder yield of 4.4%, a price-to-sales ratio of 0.43 and an enterprise-value-to-EBITDA ratio of 6.8. The price-to-book ratio is 2.30, which translates to a rank of 62.
A higher-quality stock possesses traits associated with upside potential and reduced downside risk. Backtesting of the Quality Grade shows that stocks with higher grades, on average, outperformed stocks with lower grades over the period from 1998 through 2019.
Rev Group has a Quality Grade of A, with a score of 81, which is very strong. The A+ Quality Grade is the percentile rank of the average of the percentile ranks of return on assets (ROA), return on invested capital (ROIC), gross profit to assets, buyback yield, change in total liabilities to assets, accruals to assets, Z double prime bankruptcy risk (Z) score and F-Score. The score is variable, meaning it can consider all eight measures or, should any of the eight measures not be valid, the valid remaining measures. To be assigned a Quality Score, though, stocks must have a valid (non-null) measure and corresponding ranking for at least four of the eight quality measures.
Rev Group has gross income to assets of 22.4% and an F-Score of 8. The sector median gross income to assets is 23.2% and the sector median F-Score is 5. The F-Score is a number between zero and nine that assesses the strength of a company’s financial position. It considers the profitability, leverage, liquidity and operating efficiency of a company. The only Quality Score metric that ranks significantly below average for Rev Group is its return on invested capital, in the 28th percentile.
Rev Group reported a positive earnings surprise of 55.9% for its fourth fiscal quarter of 2023 ended October 2023, and in the prior quarter, it reported a positive earnings surprise of 51.5%. Over the last month, the consensus earnings estimate for the first fiscal quarter of 2024, which ended in January, has increased from $0.410 to $0.423 per share due to three upward revisions. Over the last month, the consensus earnings estimate for fiscal-year 2024 ending in October has increased 1.1% from $1.553 to $1.570 per share, based on two upward revisions.
Wabash National Corp. (WNC) provides connected solutions for the transportation, logistics and distribution industries. It designs and manufactures a diverse range of products, including dry freight and refrigerated trailers, platform trailers, tank trailers, dry and refrigerated truck bodies, structural composite panels and products, trailer aerodynamic solutions and specialty food-grade processing equipment. Its segments include transportation solutions and parts and services. The transportation solutions segment comprises the design and manufacturing operations for the company’s transportation-related equipment and products. The parts and services segment comprises aftermarket parts and services; Wabash Parts LLC; food, dairy and beverage equipment; as well as the upfitting component of its truck bodies business.
Wabash National has a Quality Grade of A, with a score of 98, which is very strong. The company ranks strongly in terms of its return on assets and buyback yield. The company has a return on assets of 16.8% and a buyback yield of 3.3%, ranking in the 95th and 86th percentiles, respectively.
Wabash National has a Value Grade of A, based on a score of 92, which is deep value. The company has a rank of 23 for the price-to-free-cash-flow ratio and 20 for the price-to-sales ratio. The company has a price-to-free-cash-flow ratio of 7.8 and a price-to-sales ratio of 0.49. A lower price-earnings ratio is considered a better value. Wabash National’s price-earnings ratio is 5.5, compared to the sector median of 22.9. The enterprise-value-to-EBITDA ratio is 3.6, which translates to a rank of 11.
Wabash National has an Earnings Estimate Revisions Grade of D, based on a score of 38, which is negative. The company reported a positive earnings surprise of 20.2% for fourth-quarter 2023, and in the prior quarter reported a positive earnings surprise of 13.4%. Over the last month, the consensus earnings estimate for the first quarter of 2024 has dropped from $0.715 to $0.567 per share due to one downward revision. Over the last month, the consensus earnings estimate for full-year 2024 has declined from $2.747 to $2.437 per share, based on two downward revisions.
Wabash National has a Growth Grade of A, based on a score of 87. The company has a Momentum Grade of B, with a score of 63.
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The stocks meeting the criteria of the approach do not represent a “recommended” or “buy” list. It is important to perform due diligence.
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