If more industrial companies report quarters like Sandvik’s (OTCPK:SDVKY, SAND.ST) third quarter, I’m not sure that the rally in industrial will hold. The stronger-than-expected margins were certainly welcome, and margins are an underappreciated driver of multiples in the sector, but meaningful shortfalls in Machining Solutions (or SMS) orders and revenue highlight that the industrial recovery is not yet on firm footing. Add in the impact of new lockdowns in Europe due to COVID-19 and you do have a good case for some concern about near-term demand in a variety of industrial end-markets.
I liked the better results from Sandvik’s mining operations, and again, the margin performance across the business (including SMS) was certainly worth praising. With Sandvik having underperformed the broader industrial group since my last update, I’m a little more interested in these shares as a short-cycle industrial recovery play, but I’m going to wait to see what other industrials report and what management offers investors at the upcoming November capital markets day in terms of long-term strategic initiatives and targets.
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Sandvik Outperforms On Margins, But Weak Industrial Orders Are A Concern
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