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5 Equipment Stocks to Buy: Analysts

Karvy Global

07/21/11 - 11:21 AM EDT
NEW YORK ( TheStreet) -- Capstone Turbine (CPST), Arrow Electronics (ARW), TTM Technologies (TTMI), Anixter International (AXE) and Hubbell (HUB.B) manufacture electrical and electronics products used by other businesses.

These stocks are expected to rise between 27% and 59% over the next year, according to the average price targets of analysts surveyed by Bloomberg.

We have listed these stocks in ascending order of potential upside based on average price targets.

Hubbell designs and builds electrical and electronics products for a range of nonresidential and residential construction, industrial and utility applications. The company structures its operations into two segments: Electrical and Power.

Net sales for the first quarter of 2011 came in at $658.1 million, vs. $570.5 million in the year-earlier quarter. Electrical segment net sales increased 14% year over year to $466.1 million, while Power segment net sales surged 19% to $192 million during the quarter.

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Operating income during the first quarter was $83.6 million, or 12.7% of net sales, compared with $65.7 million, or 11.5% of net sales, for the comparable period in 2010. Net income was $50.3 million, vs. $38.6 million in same quarter of 2010.

Timothy H. Powers, the company's CEO, has said, "Based on early indications of improving market demand and higher price realization, we are now forecasting sales to increase by 5% to 7% for the year."

Based on the average analyst price target from Bloomberg, the stock is expected to rise 27% over the next year. Sixty-seven percent of analysts surveyed by Bloomberg have buy ratings on the stock.

Anixter International distributes electrical and electronic wire & cable, fasteners, and communication products for a host of industries.

For the first quarter of 2011, sales increased 19% from the year-earlier period to $1.52 billion. The acquisition of Clark Security Products and higher copper prices boosted top-line growth during the quarter.

Operational cash flow was $5.5 million, vs. $74.7 million in the year-ago quarter. Higher working capital requirements during the quarter reduced cash flows, but contributed to robust sales growth in this period.

Prudent gross margin management and improved sales mix lifted operating performance. Operating profit increased 46% year over year to $83.1 million. Lower tax rates related to international operations boosted net income to $44.3 million.

On average, analysts expect the stock to gain 34% over the next year. The stock has a price-to-earnings ratio of 12 (using 2011 earnings estimates). Sixty-four percent of analysts covering the stock rate it a buy.

TTM Technologies manufactures printed circuit boards (PCB) and provides backplane and subsystem assemblies to other businesses.

Total revenue for the first quarter of 2011 increased 16% year over year to $342.8 million. Commenting on the global PCB markets, Kent Alder, CEO of TTM, said, "Our Asia Pacific operations, in particular, are experiencing strong demand for PCBs used in touchpad tablets and smartphones. Our North America operations continue to generate solid cash flow. We are focused on leveraging our combined strengths as a company to continue to execute our growth strategy."

Net income for the first quarter of 2011 was $27.1 million, or 33 cents per diluted share. Earnings before interest, taxes, depreciation and amortization was $66.5 million, or 19.4% of revenue. Revenue for the second quarter of 2011 is estimated between $350 million and $370 million, with estimated EPS per diluted share of between 28 cents and 37 cents.

According to the average price target of analysts, the stock is expected to gain around 40% over the next year. Eighty-three percent of analysts covering the stock rate it a buy.

Arrow Electronics distributes products, services and solutions to industrial and commercial users of electronic components and enterprise computing solutions. Arrow is a channel partner for more than 1,200 suppliers and 115,000 original equipment manufacturers, contract manufacturers and commercial customers worldwide.

Revenue rose to $5.22 billion during the 2011 first quarter from $4.24 billion in the same period the year before. During the quarter, component sales grew 24% year over year, while enterprise-computing solutions increased 21%.

Net profit improved to $136.3 million from $87 million in the first quarter of 2010. Commenting on the improving profitability, Paul J. Reilly, Arrow CFO, said, "Our returns this quarter demonstrate our unwavering commitment to creating shareholder value. Return on working capital and return on invested capital advanced 240 basis points and 190 basis points, respectively, to nearly 32% and to 14%."

The average of analysts' price targets implies that the stock could rise 43% over the next year. Eight-five percent of analysts covering the stock rate it a buy. The stock has a price-to-earnings ratio of 7, based on estimated 2011 earnings.

Capstone Turbine develops, manufactures, markets and services microturbine energy products and solutions. The company has shipped more than 5,000 Capstone microturbine systems until date.

Revenue for the quarter ending March 31 increased 33% year over year to $81.9 million. Capstone shipped 611 units, and average revenue per unit was $109,000 during fiscal 2011 vs. 499 units in fiscal 2010 at average revenue per unit of $98,000.

Capstone's backlog was $106.4 million, up 23% from the previous year.

Improved product margins and higher unit sales reduced the gross loss to $0.5 million from a gross loss of $8.4 million during fiscal 2010.

Cash and cash equivalents at the end of the March quarter increased $4.7 million to $34.7 million from the third quarter of fiscal 2011.

The average price target of analysts surveyed by Bloomberg implies the stock will gain 59% over the coming year. Eighty-three percent of analysts covering the stock rate it a buy, according to Bloomberg.

>>To see these stocks in action, visit the 5 Equipment Stocks to Buy portfolio on Stockpickr.

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