3 Hot Growth Stocks That Recently Beat Wall Street's Expectations

Many companies beat Wall Street analysts' estimates in an accelerating economy, but fewer can do so in a slowing economy. However, the ones that do signal that they have excellent underlying long-term growth prospects. As such, I think industrial software company PTC (PTC 0.62%), electrical products company nVent Electric (NVT 1.68%), and advanced materials company Hexcel (HXL -0.03%) -- all of which recently outperformed analysts' expectations -- are great stocks to buy now.

PTC has an exceptional growth opportunity 

PTC is a play on the digital transformation of the industrial sector. Its software helps companies digitally create products (computer-aided design), manage them (product lifecycle management) from inception to physical creation and ultimately disposal, including servicing (service lifecycle management), while digitally connecting them (Internet of Things), and optimizing their performance (augmented reality).

It's a red-hot industry that offers significant benefits to industrial companies, and that's why its growth is likely to hold up relatively well even in a broad economic slowdown. 

Indeed, PTC's results for the first quarter of its fiscal 2023 came in slightly better than management's guidance and above Wall Street expectations on its key metrics, including its annual run rate (the annualized value of its software and support subscriptions).

During the earnings call, PTC CEO Jim Heppellmann did report some signs of weakening, saying he saw "further signs of a downturn in the form of incrementally softer bookings." However, strong renewals for the period, which ended Dec. 31, led to its annual run rate outperforming expectations, and management's guidance incorporates the possibility of a slowdown. 

Data source: PTC presentations. 

If management hits its fiscal 2023 free cash flow (FCF) guidance of $575 million and the bottom end of its target range of $700 million to $750 million in fiscal 2024, it will trade at 28 times FCF for 2023 and 23 times FCF for 2024. Those are excellent valuations for a company capable of mid-teens-percentage annual run rate growth over time, particularly as digital adoption grows in the industrial world.

Hexcel is the future of the aerospace industry

Advanced materials company Hexcel beat estimates in the fourth quarter and raised its 2023 guidance beyond Wall Street's expectations. Management now expects earnings per share of $1.70 to $1.90 and $140 million in FCF for 2023. 

The investment case for Hexcel rests on the increasing use of its lightweight carbon fiber composites in the commercial aerospace, space & defense, and industrial sectors, which account for 58%, 29%, and 13% of its sales, respectively. Its composites offer weight and strength advantages over traditional materials. Therefore, they are used where such qualities add a clear cost advantage, such as on commercial airplanes, where they reduce running costs.

The company's most exciting growth driver will come from the recovery in commercial aerospace production, not only in the narrowbody and widebody markets, where Boeing and Airbus are ramping up production to deliver on multiyear backlogs, but also in business jets. In addition, Hexcel's content per plane is improving as more composites are used on newer planes, particularly widebodies. 

In response to the strength of its end markets, Hexcel is recommencing construction of a new carbon fiber line in Alabama to support long-term growth, and the company's future looks bright.

nVent delivers yet again

Last but not least, nVent blew past analysts' consensus expectation for adjusted EPS of $0.58 for the fourth quarter, instead reporting adjusted EPS of $0.66. Moreover, its guidance for adjusted EPS in 2023 is in the range of $2.51 to $2.61, compared to Wall Street's consensus expectation of $2.49.

nVent makes and sells electrical connection and protection equipment to a wide range of customers investing in electrifying their operations. It may sound boring, but when the world moves toward greater use of electric vehicles, renewable energy, data centers, smart buildings and infrastructure, industrial automation, and internet-enabled devices, it's moving toward electrification. 

It's a clear trend, and nVent appears to like to underpromise and overdeliver. Management raised its full-year 2022 sales and earnings guidance on every earnings call last year. Trading at 17 times the midpoint of management's earnings guidance with underlying solid growth trends supporting it, nVent remains an excellent option for investors looking to play the electrification trend.