Prediction: Buying This Industrial Stock Today Could Set You Up for Life

Brady (NYSE: BRC) represents exactly the kind of boring stock that many investors buy, almost forget about, and then periodically look at, only to find it has delivered excellent long-term returns. It will suit relatively conservative investors seeking a stock with good upside potential and limited downside risk.

The investment case for Brady

Brady is a company that provides printing, labeling, and ID products. For an example of its solutions, consider a manufacturing plant that needs its machinery and cabling labeled to facilitate easy servicing, perhaps via virtual reality. Another highly topical use is labeling in highly complex AI data centers (an activity actually representing 20% of its Americas and Asia sales). In both cases, the ability to quickly identify assets is crucial in quickly servicing them and reducing downtime.

It's an easy-to-overlook, but essential, part of the industrial economy, and it supports the first two of the three reasons to buy the stock.

Organic growth prospects

Brady's quarterly year-over-year organic growth has ranged between 1.5% and, most recently, 8.2%, placing it in the low- to mid-single-digit revenue growth category. It's solid enough, but considering that data centers make up about 20% of America and Asia sales (and grew 20% in the last reported quarter), and 13% of Europe & Australia sales, the opportunity for data center labeling to add a growth kicker is significant.

In addition, Brady has a margin expansion opportunity by selling more high-margin consumables for its printers and labeling equipment.

Image source: Getty Images.

The acquisition of Honeywell's Productivity Solutions and Services Business is transformative

Industrial conglomerate Honeywell is in the process of breaking up, and as part of that process, it's divesting its Productivity Solutions and Services (PSS) business to Brady for $1.4 billion, representing just 8 times last year's earnings before interest, taxation, depreciation, and amortization (EBITDA). While PSS may be non-core for Honeywell's automation business (Honeywell Technologies), its mobile computers, scanners, and printing solutions for larger enterprises are very complementary to Brady's solutions.

Furthermore, the deal will add a new suite of larger customers for Brady and create a more comprehensive suite of solutions to sell to them. Throw in some earnings growth from an expected $25 million in cost savings (about 1% of combined 2025 revenue) over three years, and Wall Street expects slightly more than 14% annual earnings-per-share growth from 2025 to 2028.

Image source: Getty Images.

Valuation

Brady trades at an enterprise value (market cap plus net debt) of 12.6 times forward EBITDA and is buying PSS on 8 times trailing EBITDA. It's a value- and earnings-enhancing acquisition, and the Wall Street consensus has Brady trading at less than 15 times estimated 2027 earnings. That's an excellent valuation for a company with attractive growth prospects.

Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Brady and Honeywell International. The Motley Fool has a disclosure policy.