AXON, HWM, CAT: What Lies Ahead for S&P 500 Industrials Stocks After Last Quarter’s Earnings Outperformance

Industrial companies in the S&P 500 Index (SPX), including Axon Enterprise (AXON), Howmet Aerospace (HWM), and Caterpillar (CAT), delivered robust earnings surprises last quarter compared to companies in other sectors. According to Bloomberg, industrial companies in the S&P 500 surpassed the Street’s estimates by 23.5% on average, compared with the 6.8% average of all the companies in the index. In comparison, companies in the materials and technology sectors beat estimates by 17.8% and 7.6%, respectively, on average. Let’s look at the reasons for the outperformance of industrials and whether this momentum is expected to continue.

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Here’s Why Industrials Delivered the Biggest Earnings Beat Last Quarter

Bloomberg noted that Axon Enterprise, a maker of Tasers, body cameras, and drones, delivered the largest earnings surprise among defense companies, driven by a rise in law enforcement activity in the U.S. CEO Rick Smith expects Axon to benefit from huge opportunities from federal customers.

Meanwhile, General Electric (GE) gained from demand in commercial aerospace and Deere (DE) benefited from the ongoing recovery in demand within its construction and small agriculture segments, even as the large agriculture industry continues to be under pressure. Howmet Aerospace reported better-than-expected Q4 results and issued a strong Q1 outlook, as the maker of castings and fasteners for aircraft is benefiting from robust demand for parts in commercial aerospace. It is also gaining from data center-related demand for its gas turbines.

Also, Caterpillar impressed investors with its quarterly performance, driven by strength in its power and energy segment amid solid demand from artificial intelligence (AI) data centers. Furthermore, Rockwell Automation (ROK) exceeded earnings expectations by 12%, as the company’s industrial-grade automation, power management, and other offerings are seeing solid demand from data centers.

Will the Momentum Continue?

The escalating U.S.-Iran war and rising oil prices due to supply disruption in the Middle East could impact the performance of some industrial companies in the quarters ahead.

Geopolitical tensions might lead to a rise in military spending and bode well for defense companies like Lockheed Martin (LMT), L3 Harris Technologies (LHX), Northrop Grumman (NOC), and RTX Corp. (RTX). Axon Enterprise could also see continued demand for its safety technology. However, Caterpillar, Deere, and several other companies might come under pressure as a prolonged war might continue to keep energy prices high, disrupt supply chains, and lead to an economic slowdown, impacting overall demand.

Meanwhile, AI infrastructure companies like Vertiv Holdings (VRT), which offers power cooling solutions to data centers, could continue to have a strong run if capital spending by hyperscalers remains strong.

Wall Street’s Take on Industrials Stocks

Using TipRanks’ Stock Comparison Tool, let’s look at the ratings for some of the industrial stocks mentioned above. Currently, Wall Street has a Strong Buy consensus rating on Axon Enterprise, General Electric, Howmet Aerospace, Vertiv Holdings, L3Harris Technologies, and RTX.

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