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When you hear the term “industrial engineer”, I bet you think, it is a group of people who build and maintain heavy-duty machinery and equipment.
An industry is any field of business consisting of several stakeholders whose primary objectives contribute to the same economic activity. To engineer means; to invent, design, analyze, build and test machines, systems, structures.
Combining these two terms simplifies what an industrial engineer is and what functions they carry out. Essentially industrial engineers are efficiency experts. Their primary roles are to collect and analyze data, identify opportunity areas, and improve them.
Usually, their strengths are mathematics, statistics, and analysis. Their analytical and forecasting training and their eye for productivity are among the reasons why industrial engineers excel at investment because these factors drive profitability and growth. Growth makes it easier for companies to keep paying dividends and increase total shareholder return (TSR).
Keeping this in mind, I reached out to some industrial engineers to see what companies they would recommend. Below we will review the market capitalization, stock price, yield, and dividend of the three stocks selected. We will also explore each company‘s forward price/earnings ratio and the latest expert ratings shared by the Wall Street Journal (WSJ).
Sysco Corp( NYSE:SYY) – An Affordable and Agile Dividend Stock.
- Market Capitalization: $40.151 billion.
- Price: 78.32
- Yield: 2.43%
- Dividend: $1.88
- Forward P/E: 20.79
- WSJ Expert Rating: Overweight
Why would Industrial engineers find Sysco attractive? The company is the global leader in distributing food products to restaurants, healthcare, educational, and hospitality locations operating in 90 countries.
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Sysco quickly pivoted its business model during the pandemic to help its customers transition to eCommerce. They recommended that take-out and delivery services should replace the dining experience. The company decisively cut its structural and variable costs and increased liquidity to be more agile and support customers who bought into the new concept. On average, the over 16 000 customers who made the change saw a 20% performance improvement compared to those who maintained their pre-pandemic business model.
Sysco collaborated with regional and national entrepreneurs providing labor, products, and other distribution solutions to prevent strains in the food supply chains. The company also strengthened its healthcare services lines of business by adding value to traditional offerings.
Pandemic operations reliability and proven competencies helped Sysco win new business valued at over $1billion (annualized) during this period.
Sysco’s sector-leading status automatically gives it a competitive advantage. Additionally, its agility and expansion into facilitating its customers’ sustainability and growth mean revenue increases.
Increased revenue is good for growth, and projections estimate an earnings per share (EPS) increase of 4.19 for 2022 up from the 3.45 projected for 20221
All WSJ analysts have given the “overweight” stock favorable ratings. They estimate that the stock price could increase to $97 in the short term.
John Deere DE Ltd (NYSE:DE) – Innovation, Efficiency, Team-Work, and Culture-Based Dividend Stock
- Market Capitalization: $111.11 billion.
- Price: 349.77
- Yield: 1.20%
- Dividend: $4.2
- Forward P/E: 16.23
Farm equipment manufacturer Deere and Company’s transition from a cumbersome dinosaur to the lean, agile market leader that it is now would make any industrial engineer proud. The John Deere brand is associated with efficiency and cutting-edge technology because of key acquisitions and the team’s commitment to constant restructuring.
Here’s one example of the company’s efficiency. For several years, the Deere Harvester Works factory in East Moline had assembled the low-tech STS model. The factory changed to producing the new technologically advanced X9 combine-harvester in 2019 for 2020’s production capacity. Despite the significant change, the factory used only 1% additional power and delivered 40-50% more productivity.
Not even COVID-19 could stop production as the company found ways to allow work to continue without exposing the highly motivated and engaged staff to the virus. The lack of work stoppage speaks volumes of the strong culture and pride of the John Deere family. The ease with which they pivot and adjust speaks to their agility and ability to manage and embrace change.
Constant innovation and user experience improvements enhance efficiencies on both; John Deere‘s production lines and in the customers‘ fields. The company retains contact with farmers by using technology to collect real-time data from machinery. The feedback aids design improvements and simplifies servicing. The close client-customer relationship builds loyalty and fosters even stronger bonds with its customers.
John Deere outperformed earnings targets in 2020 and 2021. Revenues are trending 9 billion above the previous year and gross profit increased by almost 4 billion. The company is on track for more gains, with EPS targets set at 22.21 for 2022 and 25.12 for 2023. The current free cash flow stands at 5.146 billion.
It’s hardly surprising that WSJ analysts rate Deere and Co as overweight. 13 of 24 analysts recommend the stock as a buy, only two provide unfavorable ratings. The average short-term share price target is 414, but some believe it could approach 485.
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Walmart WMT Ltd (NYSE:WMT) – A Hybrid Approach Mixed WIth Innovation dividend stock
- Market Capitalization: $73.28 billion.
- Price: 142.78
- Yield: 1.58 %
- Dividend: 2.2
- Forward P/E: 21.23
Walmart (67.39 billion); is dwarfed by Amazon (386.4 billion) in eCommerce sales. However, Walmart is still the world’s largest retailer owning over 6000 physical stores globally. For the trailing twelve months (TTM), the company’s gross profits of 143.223 billion exceed Amazons’ 118,023 billion.
eCommerce is the future of retail. In the US, Walmart has used its competitive advantage of having many locations to control 25% of the hybrid eCommerce plus the physical option of buying online and picking up at the store.
In July 2020, Walmart made a strategic move to allow third-party sales on its Walmart Marketplace website. Walmart Marketplace can use its synergistic advantages to take market share from other eCommerce players. Industrial engineers will love that the company is leveraging an efficient and pleasant user experience that its competitors cannot match in the short term.
Standard two-day delivery, exceptional customer service, and free returns are all features that would interest even the most loyal Amazon Prime members as they usually have to pay a premium for these services.
Walmart brands like Sam’s Club continue their physical, global expansion. EPS projections for 2022 stand at 6.41 moving up to 6.71 in 2023. The high P/E ratio of 21.23 underscores investor confidence in the company’s growth. All 35 WSJ analysts have given the stock a positive rating, 23 of the 35 analysts rate Walmart as a buy.
The Bottom Line
Sysco, Deere and Co, and Walmart have competitive advantages that they leverage. They also display essential characteristics that demonstrate their agility and innovativeness. They have shown their ability to pivot their operations and provide better value to their customers while increasing earnings and maintaining sufficient levels of free cash flow to sustain dividend payments.
If you would like a copy of the template I use to to perform stock analysis than feel free to grab your copy below.
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