Barclays on U.S. Multi-Industry: 1Q11 Share Appreciation Limited by Price/Cost; Outlook Still Positive
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Rating Summary:
20 Buy, 8 Hold, 0 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 11 | Down: 12 | New: 9
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Barclays on U.S. Multi-Industry: 1Q11 Share Appreciation Limited by Price/Cost; Outlook Still Positive
Barclays analyst says, "1Q11 beats and raises didn't translate to stocks: On the surface, it looked like a very impressive quarter out of the multi-industry group, with 18 out of 21 companies reporting EPS beats versus the Street. However, when we dig a little deeper and look at stock price appreciation or decline on the day of reporting, quality issues, especially around price/cost, appear to be the main driver of aggregate weak performance. Overall, the stocks didn't do well on the earnings prints, even with some of the quality beats, largely due to contribution margins below expectations. General Electric (NYSE: GE), Emerson (NYSE: EMR), Parker Hannifin (NYSE: PH), Rockwell Automation (NYSE: ROK), and Tyco (NYSE: TYC) were some of the most notable underperformers."
"On the flip side, 3M (NYSE: MMM), Honeywell (NYSE: HON), Ingersoll-Rand (NYSE: IR), and W.W. Grainger (NYSE: GWW) posted a combination of better-than-expected top-line results combined with contribution margins better than our expectations and as a whole outperformed the market. So, for the sector, while the better-than-expected top-line results drove EPS beats across the group, we think investors remained discriminating around operating performance evidenced by the divergent moves in companies that outperformed/underperformed on contribution margins which, to a large degree, reflected price/cost, and of course anticipatory expectations."
"Strength in quarter supports our Positive sector view: Our thesis on the sector is that the industrial market globally could stay strong, along with growth in emerging markets, which in 2012 could be combined be a recovery in non res and maybe utility spending too. That could lead to accelerating 2012 top-line and earnings growth, which could ultimately result in upside surprises on earnings."
Barclays analyst says, "1Q11 beats and raises didn't translate to stocks: On the surface, it looked like a very impressive quarter out of the multi-industry group, with 18 out of 21 companies reporting EPS beats versus the Street. However, when we dig a little deeper and look at stock price appreciation or decline on the day of reporting, quality issues, especially around price/cost, appear to be the main driver of aggregate weak performance. Overall, the stocks didn't do well on the earnings prints, even with some of the quality beats, largely due to contribution margins below expectations. General Electric (NYSE: GE), Emerson (NYSE: EMR), Parker Hannifin (NYSE: PH), Rockwell Automation (NYSE: ROK), and Tyco (NYSE: TYC) were some of the most notable underperformers."
"On the flip side, 3M (NYSE: MMM), Honeywell (NYSE: HON), Ingersoll-Rand (NYSE: IR), and W.W. Grainger (NYSE: GWW) posted a combination of better-than-expected top-line results combined with contribution margins better than our expectations and as a whole outperformed the market. So, for the sector, while the better-than-expected top-line results drove EPS beats across the group, we think investors remained discriminating around operating performance evidenced by the divergent moves in companies that outperformed/underperformed on contribution margins which, to a large degree, reflected price/cost, and of course anticipatory expectations."
"Strength in quarter supports our Positive sector view: Our thesis on the sector is that the industrial market globally could stay strong, along with growth in emerging markets, which in 2012 could be combined be a recovery in non res and maybe utility spending too. That could lead to accelerating 2012 top-line and earnings growth, which could ultimately result in upside surprises on earnings."
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