Chicago, IL – April 30, 2025 – Today, Zacks Equity Research discusses Caterpillar Inc. CAT, Komatsu KMTUY and Hitachi Construction Machinery HTCMY.
Industry: Manufacturing - Construction & Mining
Link: https://www.zacks.com/commentary/2458219/3-stocks-to-watch-in-the-promising-construction-mining-equipment-industry
The Zacks Manufacturing - Construction and Mining industry is well positioned to gain from the stepped-up infrastructure investment spending in the United States and solid demand from the mining sector, fueled by the energy transition trend.
Players like Caterpillar Inc., Komatsu and Hitachi Construction Machinery are likely to ride on the demand trends. These stocks are likely to benefit from efforts to bring technologically advanced products to the market. These players have also been focused on improving productivity and efficiency to counter cost pressures.
The Zacks Manufacturing - Construction and Mining industry comprises companies that manufacture and sell construction, mining and utility equipment. They support customers using machinery in the construction of commercial, institutional and residential buildings and infrastructure projects.
Their equipment is also utilized in underground mining, drilling and mineral processing and surface mining to extract and haul copper, iron ore, coal, oil sands, aggregates, gold and other minerals and ores. Their products are varied, including loaders, pavers, dozers, excavators, concrete mixer trucks, crushing, pulverizing and screening equipment, tractors and cranes. Industry participants support oil and gas, power generation, marine, rail and industrial applications through their reciprocating engines, generator sets, gas turbines and turbine-related services.
Manufacturing Output Up in Q1 Despite a Dip in March: The U.S. manufacturing sector showed signs of resilience in early 2025 after 26 months of contraction. However, tariff concerns somewhat derailed the momentum in March. The Institute for Supply Management’s manufacturing index registered a 50.9% reading in January and 50.3% in February (levels above 50% indicate expansion).
However, the index declined to 49% in March, primarily due to escalating tariff concerns that prompted customers to reduce orders. Per the Federal Reserve, industrial production fell 0.3% in March, the first contraction after three months. Despite the dip, industrial production increased at an annual rate of 5.5% in the first quarter of 2025. Manufacturing output rose 0.3% in March.
For the first quarter, factory output expanded 5.1% at an annual rate. Mining output grew 0.6% in March but remained flat in the first quarter as a whole. Although new tariffs may increase costs and add supply-chain uncertainty, industry players are responding with pricing strategies and supply adjustments. Additionally, tariffs are expected to boost domestic demand and offer some insulation from foreign competition.
Energy Transition Trend, Construction Spending to Aid the Industry: The intensifying global focus on shifting from fossil fuels to zero emissions will require a large number of commodities, which, in turn, will support mining equipment demand in the years to come. The U.S. government's plans to increase investment in infrastructure construction, particularly in critical subsectors, such as transportation, water and sewerage, and telecommunications, should support demand in the coming years.
Higher Pricing, Cost Cuts to Boost Margins: The industry is facing input cost inflation and transport and logistic costs. Industry players are focusing on pricing actions and efforts to improve productivity and efficiency. They are constantly implementing cost-reduction actions, which are likely to help sustain margins in this scenario. The companies are focused on streamlining their operations and realigning around high-growth key markets or customer segments to enhance their performance.
Investment in Digital Initiatives a Key Catalyst: Industry participants are investing in digital initiatives like AI, cloud computing, advanced analytics and robotics. Digital transformation aids organizations in boosting productivity and increasing efficiency, reliability and safety, thereby enriching customer satisfaction. With the pressing need to cut carbon emissions, companies worldwide are relying more on autonomous machinery. Thus, players in the industry are stepping up their research and technological capabilities to bring products equipped with the latest technology into the market.
The group’s Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates bright prospects in the near term. The Zacks Manufacturing - Construction and Mining industry, a seven-stock group within the broader Zacks Industrial Products sector, currently carries a Zacks Industry Rank #37, which places it at the top 15% of 247 Zacks industries.
Before we present a few stocks that you may want to consider for your portfolio, let’s look at the industry’s recent stock-market performance and the valuation picture.
The Manufacturing - Construction and Mining industry has underperformed the Zacks S&P 500 composite and its sector over the past year.
Over this period, the industry has declined 12.8% compared with the sector’s fall of 10.4%. The Zacks S&P 500 composite has moved up 8.2%.
The forward 12-month EV/EBITDA ratio, a commonly used multiple for valuing Manufacturing, Construction and Mining companies, shows that the industry is currently trading at 10.11 compared with the S&P 500’s 12.88 and the Industrial Products sector’s forward 12-month EV/EBITDA of 19.30.
Over the last five years, the industry traded as high as 14.37 and as low as 7.89, with a median of 10.52.
Komatsu: The company recently reported a 6.2% increase in fiscal 2024 consolidated net sales, attributed to higher demand for mining equipment. It expects higher sales volumes in the construction, mining and utility equipment business in fiscal 2026. In the industrial machinery and other businesses, Komatsu expects sales and profit to increase year over year as sales of large presses for the automobile industry and maintenance revenues of the excimer laser-related business for the semiconductor industry are projected to improve.
The company recently launched its new three-year medium-term management plan, Strategic Growth Plan, from fiscal 2025 to fiscal 2027. Komatsu targets business growth above industry levels and industry-leading profitability, while maintaining a return on equity (ROE) target of more than 10%, exceeding the cost of shareholders' equity. The company's shares have gained 38.6% in the past six months.
The Zacks Consensus Estimate for Komatsu’s fiscal 2026 earnings has moved up 13% over the past 60 days. KMTUY has an estimated long-term earnings growth rate of around 5%. It has a trailing four-quarter earnings surprise of 22.7%, on average. It currently sports a Zacks Rank #1 (Strong Buy).
You can see the complete list of today’s Zacks #1 Rank stocks here.
Hitachi Construction Machinery: Per its BUILDING THE FUTURE 2025 initiative (which concludes in the fiscal year ending March 31, 2026), the company has been focused on expanding business in the Americas. Backed by this, it achieved its fiscal 2025 revenue target of 300 billion JPY from the Americas alone. Other core strategies of the plan include delivering innovative solutions for customer needs and enhancing the value chain business.
The company is, thus, strengthening its focus on value-chain businesses other than new machinery sales, such as parts and services, rentals, used equipment, and parts recycling. It is utilizing digital technologies to provide solutions at all points of contact with customers. The company plans to begin full-scale production of dump trucks in fiscal 2026, aiming to capitalize on the strong demand in the market.
Notably, the Americas (North, Central and South America) account for approximately 40% of the global markets for dump trucks, totaling more than 150 tons. The company's shares have gained 11.4% in the past six months.
The Zacks Consensus Estimate for HTCMY’s fiscal 2026 earnings has moved up 6.7% over the past 60 days. It indicates year-over-year growth of 5.7%. Hitachi currently sports a Zacks Rank of 1.
Caterpillar: Caterpillar’s Energy & Transportation segment has shown improved performance, helping offset weaker volumes in the Resource Industries and Construction Industries segments in the past few quarters. The company’s substantial backlog of $30 billion at the beginning of the first quarter of 2025 will also support its top line in the forthcoming quarters.
Caterpillar’s long-term demand prospects are supported by increased infrastructure spending and the ongoing shift toward clean energy. Its strong market presence, diverse portfolio and innovation position it for improved performance going forward. The company is funding initiatives that drive long-term growth focused on areas of expanded offerings and services and digital initiatives like e-commerce, sustainability and electrification. The company's shares have declined 19.6% in the past six months.
Caterpillar has a trailing four-quarter earnings surprise of 4.53%, on average. CAT has an estimated long-term earnings growth rate of 7.6%. The company currently carries a Zacks Rank #3 (Hold).
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