February 5, 2025 - Today, Zacks Equity Research discusses Caterpillar Inc. CAT, Komatsu KMTUY, Hitachi Construction Machinery HTCMY and Hyster-Yale, Inc. HY.

The Zacks Manufacturing - Construction and Mining industry has been bearing the brunt of the prolonged contraction in the manufacturing sector. Even though there has been a recent uptick, the imposition of new tariffs could jeopardize this recovery. 

Despite this ongoing weakness, increased infrastructure investment in the United States and demand from the mining sector, driven by the energy transition trend, will buoy the industry. Caterpillar Inc., Komatsu, Hitachi Construction Machinery and Hyster-Yale, Inc. are poised to benefit from these trends. These companies’ emphasis on introducing technologically advanced products, productivity and efficiency enhancements will aid growth.

Industry Description

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, 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.

Trends Shaping the Future of the Manufacturing - Construction and Mining Industry

Tariff Concerns Overshadow Recent Manufacturing Rebound: The Institute for Supply Management’s manufacturing index had been in contraction for consecutive 26 months until January 2025, when it saw a modest increase to 50.9%. Over the past 12 months, the index has averaged 48.4%. The New Orders Index has expanded for the past three months, following seven consecutive months of contraction. However, sustained growth remains uncertain as the index has not delivered consistent growth since the end of its 24-month expansion streak in May 2022.

The Production Index also moved into expansion territory in January, registering 52.5% and breaking an eight-month contraction streak. The recent imposition of tariffs by President Trump on Canada, Mexico and China triggers concerns that it could disrupt supply chains and derail this recent recovery in U.S. manufacturing. 

Energy Transition Trend, Construction Spending to Aid 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 and other actions 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 performances. 

Investments in Digital Initiatives Act as 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.

Zacks Industry Rank Indicates Weak Prospects

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dim prospects in the near term. The Zacks Manufacturing - Construction and Mining industry, which is part of the broader Zacks Industrial Products Sector currently, carries a Zacks Industry Rank #204, which places it at the bottom 18% of 249 Zacks industries.

Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one. 

Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group's earnings growth potential. Over the past four years, the industry's earnings estimates for 2025 have moved down 13%. 

Before we present a few stocks that you may want to consider for your portfolio, let us look at the industry’s recent stock-market performance and valuation picture.

Industry Versus Broader Market

The Manufacturing - Construction and Mining industry has outperformed the sector but lagged the Zacks S&P 500 composite over the past year.

Over this period, the industry has grown13.3% compared with the sector’s growth of 11.9%. The Zacks S&P 500 composite has moved up 23.8%.

Industry's Current Valuation

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 10.92 compared with the S&P 500’s 13.96 and the Industrial Products sector’s forward 12-month EV/EBITDA of 19.85.

Over the last five years, the industry traded as high as 14.37 and as low as 7.36, with a median of 10.43.