Barclays on U.S. Machinery: Cutting Production Forecast for 2012/13 NAFTA Class 8

June 18, 2012 1:39 PM EDT Send to a Friend
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Barclays on U.S. Machinery: Cutting Production Forecast for 2012/13 NAFTA Class 8

Analyst, Andy Kaplowitz, said, "We are lowering our NAFTA Class 8 industry production forecast for 2012 to 280k (from 295k) and 2013 to 290k (from 320k). Given weakening orders in recent months and the approaching seasonally slow order period (July and August are historically the weakest order months of the year), we think monthly production rates are likely to trend below the 25.6k/month average posted by the industry in January-April."

"With that, we are tweaking our estimates on CMI, ETN, ALSN, and PCAR, but see opportunity given inexpensive valuations. We are decreasing our 2012 and 2013 estimates for our three primary truck suppliers and PCAR by ~5% on lower expected NAFTA Class 8 truck production volumes, incremental FX headwinds, and some tweaks to reflect continued lethargic emerging market growth as well as general macro uncertainty'"

For Overweight-rated Allison Transmission (Nasdaq: ALSN), price target cut from $28 to $26, FY12 EPS estimate cut from $1.15 to $1.10 and FY13 from $1.55 to $1.40.

For OW-rated Cummins (NYSE: CMI), price target lowered from $136 to $131 and FY12 EPS estimate cut from $10.65 to $10.25 and FY13 from $11.85 to $11.35

For OW-rated Eaton Corp (NYSE: ETN), price target lowered from $62 to $60, FY12 EPS estimate cut from $4.55 to $4.40 and FY13 from $5.20 to $5.00.

For Equalweight-rated PACCAR (Nasdaq: PCAR), price target lowered from $45 to $42, FY12 EPS estimate cut from $3.50 to $3.35 and FY13 from $4.05 to $3.80.

Overall, Barclays and Kaplowitz think that underlying trends are intact, but growth is mainly being supported by replacements not expansions. Some other factors include declining price of diesel, solid fundamentals of freight carriers, and ovreall fleet remains at an elevated age.


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