Why Franklin Electric Stock Raced 5% Higher on Monday
Key Points
He now believes it's worthy of a buy.
He also raised his price target by double digits.
Pump and motor manufacturer Franklin Electric (NASDAQ:FELE) was pumping up the value of stock portfolios on Monday. Investors eagerly bought the stock on news that an analyst tracking it had upgraded his recommendation. By the time the smoke had cleared, Franklin's shares were up in excess of 5% that trading day.
Plugged in
The upgrading party was DA Davidson's Matt Summerville, who now feels Franklin is a buy, whereas he previously flagged it as neutral. In making the change, Summerville also increased his price target to $135 per share from $105.
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According to reports, the analyst made his move on the industrial company's growing exposure to potentially high-growth market segments. In his view, investors might be underestimating its ability to develop new products for clients in data center infrastructure and critical minerals businesses.
On top of that, Summerville waxed bullish about the company's ability to boost its distribution business, which should increase segment margins and contribute to revenue growth.
The new and the old
The analyst also pointed out that Franklin has a relatively clean balance sheet, which is important because industrial businesses can often be capital-intensive, leading to thin profitability or even bottom-line losses.
I think he's correct in identifying the somewhat under-the-radar, niche industrial company as a beneficiary in hot verticals these days; however, the core markets that make up the bulk of its business are vulnerable to rising interest rates and construction-industry downcycles. Still, the emergence of the "newer" businesses presents an enticing opportunity for Franklin.
Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Franklin Electric. The Motley Fool has a disclosure policy.