7 Equipment Stocks With Upside

NEW YORK (TheStreet) -- A United Nations Industrial Development Organization (UNIDO) report said that world manufacturing output grew by 6.5% during the first quarter of 2011 with China emerging as the major contributor at 15% followed by the U.S. with 7.1%.

According to the report, manufacturing output of developing countries and industrialized countries increased 11.5% and 4.4%, respectively. Newly industrialized countries like Turkey and Mexico recorded 13.8% and 7.4% growth, respectively.

These seven stocks from the equipment makers industry for sectors like agriculture, mining, transportation and power systems have a potential upside ranging between 19% to 34%, based on analysts' consensus estimates polled by Bloomberg.
7. Illinois Tool Works ( ITW) is a diversified manufacturer of engineering products and equipment with 840 business units located across 57 countries. The company's product portfolio includes transportation, industrial packaging, food equipment, power systems and electronics, construction equipment, polymers and fluids, decorative surfaces and all other.

For the first quarter of 2011, ITW reported total revenue of $4.4 billion, up 17.4% from the year-ago quarter. Net income soared 88% to $623.1 million, or $1.24 per share, from $333.8 million, or 66 cents per share, in the first quarter of 2010. Operating margin increased 110 basis points to 15.6% with an organic contribution of 90 basis points. Meanwhile, as of April 30, 2011, the company recorded a 16% increase in total revenue with its organic base contributing 8% toward total growth.

On June 30, 2011, the company will pay a regular quarterly cash dividend of $0.0034 per share. Besides, the company's board of directors has approved a $4 billion share repurchase program, representing almost 70 million shares of the company's common stock. Recently, Illinois announced that it has formed a business unit focusing on the global warehousing and supply chain market to provide fully integrated warehouse automation solutions across the globe.

For the second quarter of 2011, ITW foresees diluted net income per share in the range of 99 cents to $1.05 with revenue growth of 17% to 20%. Looking ahead to 2011, the company estimates net income per share at $4.16 to $4.34, including 33 cents per share one-time tax benefit recorded in the first quarter 2011. It assumes revenue growth of 16% to 18%.

Of the 21 analysts covering the stock, 57% recommend a buy while the remaining suggest a hold. There are no sell ratings on the stock. Analysts polled by Bloomberg expect the stock to gain an average 19.3% to $66.53 in the upcoming 12 months.

6. Parker-Hannifin ( PH) is a full-line diversified manufacturer of motion and control technologies and systems, including fluid power systems, electromechanical controls and related components. The company's manufacturing, service, distribution, and administrative facilities are located in 39 states and in 45 foreign countries.

For the third quarter of 2011, the company reported net sales of $3.2 billion, increasing 23.9% from the year-ago quarter. Net income stood at $281.6 million or $1.68 per share, compared to $154.4 million or 94 cents per share in year-ago quarter. For the period ending March 31, 2011, the company reported 24% increase in total orders with highest contribution from the Aerospace segment (44%) followed by the Industrial International Segment (22%).

On June 3, 2011, Parker's board of directors increased regular quarterly cash dividend to 37 cents per share, representing a 16% increase from the previous quarterly dividend of 32 cents per share. For full year 2011, the company has raised its earnings per share guidance range to $6.20 to $6.40 per diluted share from the earlier range of $5.82 to $6.20 per share.

Of the 19 analysts covering the stock, 63% recommend a buy and the remaining rate a hold. There are no sell ratings on the stock. Analysts polled by Bloomberg expect the stock to gain an average 24.2% to $108.25 in the upcoming 12 months.

5. Joy Global ( JOYG) engages in the manufacture and servicing of mining equipment for the extraction of coal, ores, and other minerals. The company's operations are structured into two segments: underground mining machinery, and surface mining equipment. These are used to mine coal, copper, iron ore, oil sands and other minerals worldwide.

For the second quarter of 2011, Joy reported revenue of $1.06 billion, up from $8936.2 million recorded in the year-ago quarter. Net income stood at $162 million or $1.52 per share vs. $120.4 million or $1.15 per share in the same quarter a year earlier. Second quarter bookings increased by $477 million over the year-ago quarter. At the end of the second quarter, backlog increased by $462 million to $2.6 billion.

The company went ex-dividend recently with shareholders becoming eligible for a dividend of 17 cents per share. Additionally, Joy announced signing a definitive agreement to acquire 100% ownership interest in LeTourneau Technologies from Rowan Companies for $1.1 billion in cash. With this transaction, Joy enters the lucrative oil and gas drilling business and offsets stiff competition in its main market.

For fiscal year ending Oct. 2011, Joy has raised its estimates and forecasts earnings of $5.30 to $5.60 per share on $4.1 to $4.3 billion in revenue, compared to the earlier forecast of $5.10 to $5.40 earnings per share on revenue of $4 billion to $4.2 billion. The company believes that miners will advance their expansion plans, led by the strong belief that the current capacity must be upgraded to match demand growth.

Of the 18 analysts covering the stock, 61% recommend a buy and the rest advise a hold. There are no sell ratings on the stock. According to Bloomberg consensus, the stock will gain an average 24.3% to $111.92 in the upcoming 12 months.

4. PACCAR ( PCAR) engages in the design, manufacture and support of light, medium and heavy-duty trucks under the Kenworth, Peterbilt and DAF brands. Broadly, the company's major operating segments are design, manufacture, and distribution of light-, medium- and heavy-duty trucks and related aftermarket parts, finance and leasing products and services to customers and dealers.

Net sales for the first quarter of 2011 came in at $3.04 billion as compared to $1.98 billion in the same quarter of the earlier year. Net income for the current quarter more than doubled to $193.3 million or 53 cents per share from $68.3 million or 19 cents per share in year-ago quarter.

PACCAR Leasing Company, part of the PACCAR group, continues to expand its franchise network in North America with the addition of four locations in the U.S., in an effort to find more ways to serve its customers and markets. In mid-May, the company went ex-dividend and paid a dividend of 12 cents per share.

PACCAR recently said that it plans to invest almost $200 million over a span of two years in Brazil to build a truck manufacturing plant to cater to the strong demand in the region. The plant would produce three models of trucks under its DAF nameplate.

Of the 19 analysts covering the stock, 37% recommend a buy and the rest rate a hold. There are no sell ratings on the stock. According to Bloomberg consensus, the stock is expected to gain an average 26.4% to $60.31 over the next 12 months.

3. Kennametal ( KMT) is a leading supplier of tooling, engineered components and advanced materials used in production processes. The company operates in two segments: Metalworking Solutions and Services Group (MSSG) and Advanced Materials Solutions Group (AMSG).

For the third quarter of 2011, the company reported earnings per share of 77 cents as compared to 12 cents in the prior-year period. Sales for the current quarter increased to $615 million from $493 million earlier with 25% growth from organic business. Operating margins touched all-time highs of 15.2% while Return on Invested Capital soared to a record 12.9%. Dividend payout for the third quarter was 12 cents per share, on May 25, 2011.

The company has raised its guidance for full year 2011 and now expects organic sales growth of 24% to 25% compared to the earlier range of 21% to 24%. Earnings per share forecast between $2.75 and $2.85, topping the previous guidance of $2.50 to $2.65.

Of the 13 analysts covering the stock, 54% recommend a buy and the rest rate a hold. There are no sell ratings on the stock. Analysts polled by Bloomberg expect the stock to gain an average 26.4% to $49.00 in the upcoming 12 months.

2. Deere & Company ( DE), through its subsidiaries, operates in three business segments: Agriculture and Turf, Construction and Forestry, and Credit.

For the second quarter of 2011, net income increased 65% to $904.3 million ($2.12 per share), from $547.5 million ($1.28 per share) in the same quarter 2010. Sales were up 25% to $8.9 billion. Agriculture and Turf operations reported a 24% rise in sales, while the Construction and Forestry segment saw sales increase by 46%.

For the second quarter, the company increased its dividend to 41 cents per share, boosting 6 cents or 17% per share from the earlier level. The dividend is payable on June 30, 2011. Besides, Deere plans to build a factory to manufacture engines for its equipment manufactured in China. With the factory slated to begin production in late 2013, the investment would be close to $60 million.

For the third quarter of 2011, equipment sales are forecast 20% higher than the same period a year ago. For full year 2011, the company has raised its net income guidance to about $2.65 billion. Deere's equipment sales are estimated to grow by 21% to 23% from the prior year.

Of the 18 analysts covering the stock, 72% recommend a buy and the rest rate a hold. There are no sell ratings on the stock. According to Bloombergconsensus, the stock is likely to gain an average 30.4% to $106.55 in the upcoming 12 months.

1. Caterpillar ( CAT) manufactures construction and mining equipment, diesel and natural gas engines and industrial gas turbines. The company's three major lines of business are machinery, engines and financial products.

For the first quarter of 2011, the company realized record all-time quarterly profit of $1.2 billion or $1.84, compared to $233 million or 36 cents per share in first quarter of 2010. Sales during the quarter increased 57% to $12.9 billion from year ago quarter. As of March 31, 2011, order backlog stood at $20.8 billion, up 11% from $18.7 billion as on Dec. 31, 2010.

The company has opened a new remanufacturing facility in Singapore to serve as the regional source for remanufactured major components for large off-highway trucks and other mining equipment, including engines, transmissions, final drives and torque converters.

For April 2011, the company recorded global sales growth of 66% as compared to a 4% decline during the same month of the prior year -- so far the highest in 2011. Looking ahead to 2011, CAT estimates revenue in the range of $52 to $54 billion with earnings per share of $6.25 to $6.75, the highest annual profit in company's history. The outlook, however, does not include the acquisition of MWM Holding GmbH or Bucyrus International ( BUCY) as they are expected to complete in mid-2011.

Of the 14 analysts covering the stock, 67% recommend a buy and the rest suggest a hold. There are no sell ratings on the stock. Analysts polled by Bloomberg expect the stock to gain an average 34.1% to $133.93 in the upcoming 12 months.

>>To see these stocks in action, visit the 7 Equipment Stocks With Upside portfolio on Stockpickr.

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