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Lincoln Electric Will Leverage The Short-Cycle Recovery And Growth Should Rebound Significantly

Stephen Simpson profile picture
Stephen Simpson


  • Lincoln posted a better-than-expected fourth quarter, and guided to high single-digit revenue growth for 2021 as more end-markets return to growth.
  • Automation will lag the recovery a bit, but Lincoln is seeing expanded post-pandemic opportunities for automation outside of its traditional core auto market.
  • Lincoln is priced like the high-quality industrial it is, and I don't see particularly exciting long-term returns from the sector at today's prices.

Writing about Lincoln Electric (NASDAQ:LECO) in August, I was concerned about the risk that the Street had come back too far too fast on expectations for improving results in 2021 and beyond. While I was partially right, insofar as Lincoln Electric shares have basically tracked the broader industrial space since then, I missed just how much more investors were willing to bid up industrials, particularly on hopes of a strong short-cycle rebound in 2021, and these shares rose more than 25%.

Industrials may hold up a little better in a market downturn, but I’m still concerned that valuations are stretched, and that applies as well to Lincoln Electric. While I do have some concerns about the company’s lagging performance (relative to peers like Illinois Tool Works (ITW) and Colfax (CFX)), I do still believe that this company is an exceptionally well-run mid-cap industrial, a potential buyout target for a company looking to add a new vertical, and still leveraged to growth opportunities in new materials and automation.

As far as valuation goes, Lincoln looks priced in line with other high-quality industrials as far as return prospects (a group that includes Dover (DOV), Emerson (EMR), Parker Hannifin (PH), and Rockwell (ROK)). If you’re comfortable with the overall valuation of industrial stocks, I suppose Lincoln should still be attractive, but I regard valuations as more stretched today.

Mixed Results In Q4, But With Underlying Improvement

Although Lincoln Electric did underperform the “average” industrial in terms of organic revenue performance in Q4’20, the company did do better than average on margins, and results were comfortably above expectations on the operating income line. That said, Lincoln continues to lag peers like Illinois Tool Works and Colfax, and I think that’s worth watching.

Revenue fell 5.6% in organic terms this quarter, to $694M, beating expectations by about 1%. By product

This article was written by

Stephen Simpson profile picture
Stephen Simpson is a freelance financial writer and investor.Spent close to 15 years on the Street (sell-side, buy-side, equities, bonds).

Analyst’s Disclosure: I am/we are long ABB. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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