Improving Cycle, Liquide Integration Create Attractive Opportunity In Lincoln Electric, KeyBanc Says

Following meetings KeyBanc Capital Markets hosted with the management of Lincoln Electric Holdings, Inc. LECO, the sell-side firm upgraded its view on the power utility.

The Analyst

KeyBanc analyst Steve Barger upgraded Lincoln Electric from Sector Weight to Overweight, with a $110 price target.

The Thesis

The combination of Lincoln Electric's improving cycle, benefits from Liquide integration and expectations of increased earnings per share and free cash flow from its high-quality and high-return franchise creates an attractive opportunity, Barger said in a note.

The company's ability to generate one of the strongest free cash flow returns is due to its strong competitive position, ability to raise price to offset cost increases and strong operating culture, the analyst said.

Barger expressed confidence in the continuing expansion of the industry cycle, with the cycle historically expanding for several years once industrial production turns positive on a year-over-year basis. The improving production, according to the analyst, will lead to higher steel production and stronger organic growth for the company.

"With respect to current conditions, LECO mgmt is optimistic and noted the strong majority of its end markets are growing, including equipment OEMs, mining, transportation, and some parts of energy," the analyst said.

As such, the firm raised its earnings estimates for 2018 from $4.64 to $4.72 and that for 2019 from $5.06 to $5.29, both of which are above the consensus estimates.

The Price Action

Lincoln Elecric shares are up about 8 percent over the past year.

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