What’s Next For Nordson Stock After Its Recent 10% Fall?

Nordson Corp stock (NASDAQ: NDSN), an industrial company that makes dispensing equipment for consumer and industrial adhesives, sealants, polymers, and coatings, saw its stock plunge nearly 10% on Tuesday, May 21, after the company reported its Q2 fiscal 2024 results (fiscal ends in October). The company reported mixed results, with revenues missing and earnings beating the street estimates. It reported sales of $651 million and adjusted earnings of $2.34 per share, compared to the consensus estimates of $658 million and $2.31, respectively. However, it was the bleak guidance which didn’t sit well with the investors. NDSN stock, with an 8% decline this year, has underperformed the S&P500 index, up 12%.

Looking at a slightly longer term, NDSN stock has shown strong gains of 25% from levels of $200 in early January 2021 to around $245 now, vs. an increase of about 40% for the S&P 500 over this roughly three-year period. However, the increase in NDSN stock has been far from consistent. Returns for the stock were 27% in 2021, -7% in 2022, and 11% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that NDSN underperformed the S&P in 2023.

In fact, consistently beating the S&P 500 — in good times and bad — has been difficult over recent years for individual stocks; for heavyweights in the Industrials sector including GE, CAT, and UNP, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could NDSN face a similar situation as it did in 2023 and underperform the S&P over the next 12 months — or will it see a strong jump? Although the $290 average of analysts’ price estimate reflects around 20% upside from its current levels of $245, this price will likely see a downward revision, amid a guidance cut for fiscal 2024. At its current levels, NDSN stock trades at 5.2x revenues, compared to the 5.1x average over the last five years. This implies that NDSN is appropriately priced now, despite its recent fall.

Nordson’s revenues of $651 million in Q2’24, aligning with the levels seen in the prior-year quarter. This reflected a 5% contribution from the acquisition of ARAG last year, mostly offset by an over 4% decline in organic sales, due to pressure in electronics product lines. Looking at segments, Industrial Precision sales were up 9% y-o-y, Medical & Fluid Solutions’ revenue was up 2%, while Advanced Technology Solutions sales plunged 22% during the quarter. Nordson’s EBITDA margin remained stable at 31% in Q2. Its bottom line of $2.34 was 4% lower than $2.45 figure in the prior-year quarter.

Looking forward, Nordson expects its revenue to rise between 0% and 2% from the $2.6 billion it reported in fiscal 2023, and adjusted earnings to be in the range of $9.35 and $9.75 per share. This compares with its prior guidance of 4% to 7% revenue growth and earnings outlook of $10.00 to $10.50. This can be attributed to pressure in electronics product lines as well as the agriculture cycle in Europe. Given the near-term headwinds and a valuation multiple aligning with its historical average, we think NDSN stock is fully valued at its levels of around $245.

While NDSN stock looks appropriately priced, it is helpful to see valuable comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 5/22/2024
[2] Cumulative total returns since the end of 2016

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