Lincoln Electric Down to Strong Sell - Analyst Blog

On Jun 21, 2014, Zacks Investment Research downgraded Lincoln Electric Holdings Inc. LECO, the manufacturer and reseller of welding and cutting products, to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

On Apr 23, Lincoln Electric posted first-quarter earnings of 91 cents per share, a 1.1% decline from the year-ago quarter figure of 92 cents per share, although it beat the Zacks Consensus Estimate by a penny.

Total revenue also declined 4.7% year over year to $685 million, due to a 5% fall in volumes. Moreover, the reported figure lagged the Zacks Consensus Estimate of $734 million. Lincoln Electric did not provide any specific guidance for 2014, but hinted that top-line performance will remain sluggish, given its end-market exposure.

Additionally, the prevailing economic uncertainty in Venezuela along with the limitation of converting bolivars to U.S. dollar make operating environment in the country challenging even in 2014. Morover, the use of higher SICAD I rate will result in lower reported earnings from Venezuelan operations in the future.

The company also continues to experience weakness in Australia and China and remains uncertain about any near-term improvement. In addition, increasing raw material costs and competitive pricing within various market sectors are likely to hurt Lincoln Electric's performance.

Following the first quarter earnings announcement, the Zacks Consensus Estimate for 2014 has gone down 7.7% to $3.60 per share. Likewise, the Zacks Consensus Estimate for 2015 fell 8.2% to $4.02 per share.

Other Stocks to Consider

Better-ranked stocks that are worth considering in the sector are Gorman-Rupp Co. GRC, Atlas Copco AB (ATLKY) and Blount International Inc. BLT. While Gorman-Rupp holds a Zacks Rank #1 (Strong Buy), Atlas Copco and Blount International carry a Zacks Rank #2 (Buy).