ESAB Finishes 2022 on a Strong Note

Narrow-moat-rated ESAB ESAB finished 2022 with a strong fourth quarter, as its full-year revenue of $2,593 million and adjusted EPS of $4.21 both came in above our estimates ($2,468 million and $4.09, respectively). After rolling our model forward one year, we’ve bumped our fair value estimate up to $65 from $64, mostly due to time value of money. We view the name as fairly valued, with the stock currently trading in 3-star territory.

ESAB grew its fourth-quarter organic sales by 11% year over year, driven by 9% price attainment and 2% volume growth. Compared with the same period last year, ESAB’s fourth-quarter organic sales increased by 5% in the Americas and 15% in EMEA and APAC. Volumes were up by 7% year over year in EMEA and APAC, fueled by strong growth in India and the Middle East. Despite ongoing supply chain constraints and cost inflation, ESAB expanded its fourth-quarter adjusted EBITDA margin by 40 basis points from the prior-year period, from 17% to 17.4%, which we think underscores the firm’s solid execution and pricing power.

For full-year 2023, management anticipates core organic revenue growth of 3%-5% (excluding Russia), adjusted EBITDA of $420 million-$440 million, and adjusted EPS of $3.80-$4.00. The company expects the price-cost spread to be neutral for the full year. On the earnings call, management highlighted several new product launches, including Renegade Volt, an interchangeable battery-powered welder. Furthermore, ESAB completed two bolt-on acquisitions in the fourth quarter, Swift-Cut and Therapy Equipment, which we think will bolster the firm’s gas control and fabrication technology businesses. The acquisitions will contribute roughly $20 million in annual run-rate revenue.