Stifel Shows Industrial Optimism in Light of Trump Win - (ETN) (IR) (RBC) (EMR) (ROK)
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Stifel is currently feeling optimistic surrounding several U.S. based businesses exposed to domestic infrastructure spending following Donald Trump's presidential election win, as well as the retaining of a Republican controlled U.S. congress. Recent investor moves show enthusiasm within the business community that should lead to increased business optimism going forward. This optimism will be helpful for EE/MI/Industrial distributor multiples and also dramatically reduces the likelihood of deflationary and recession fears for the broad market as well as parochial sectors.
Stifel analyst Robert McCarthy noted, "we are raising our target prices across the group giving some credit for multiple expansion due to this increased growth optimism. No changes to ratings, though we recognize names from our short cycle playbook – ETN, RBC, EMR, ROK. Finally, we reiterate our Buy Rating and top pick on preferred short cycle reflation play Ingersoll Rand, raising our target price to $85."
McCarthy continued, "While we remain cautious on the group given staging of the cycle and a recognition that Trump’s plan could hit many snags, clearly the fact that the Bulls have the better of the argument near term that will be tough to refute, making our strategist Barry Bannister’s view of a six month rally in stocks and in particular cyclicals quite plausible"
Target Price and risks to effected companies acknowledged by Stifel are as follows:
AMETEK (NYSE: AME) has a price target set at $53, along with an expected 2017 EPS of $2.40. Risks to this company may include continued pressure from weak oil prices along side a recent management transition.
A.O. Smith (NYSE: AOS) has a $48 target price, along with an expected 2017 EPS of $2.05. Risks include high expectations around organic growth, China exposure, and integration of recent acquisitions.
Danaher's (NYSE: DHR) target price is $92, with a FY17 EPS estimate of $3.85. In addition to general market and macroeconomic risks, for Danaher, risks include future M&A activity/integration and a potential change in capital allocation philosophy.
Emerson's (NYSE: EMR) target price is $61, with a FY2018E EPS estimate of $2.90. In addition to general market and macroeconomic risks, for Emerson Electric, risks include continued subdued growth and weakness in Emerging Markets.
Eaton (NYSE: ETN) has a $69 target price, as well as a 2017E EPS estimate of $4.30. For Eaton, risks include oil & gas exposure and headwinds in its agriculture and heavy machinery end markets, weak LATAM end markets, and potential deceleration in global nonresidential construction.
Fastenal's (NASDAQ: FAST) target price is $41, with a 2017E EPS estimate of $1.80. For Fastenal, risks include persistent low inflation, increased pricing transparency, and Amazon.
General Electric (NYSE: GE) has a price target of $33, and a FY17 EPS estimate of $1.65. Risks for General Electric include the macro-environment and the risk of a worse than expected global recession, the Alstom acquisition integration synergy benefits (currently targeting $3 billion in realized cost synergies by 2020), GE's ~30% emerging market exposure could be at risk from a foreign currency standpoint and a potential global recession, and GE has 17% of segment revenues tied to Oil and Gas, which will remain a persistent top-line headwind through 2016.
W.W. Grainger (NYSE: GWW) has a $224 target price, with a 2017 EPS estimate of $11.80. For W.W. Grainger, risks include persistent low inflation, increased pricing transparency, and Amazon.
Honeywell's (NYSE: HON) target price is $128. HON also has a 2017 EPS estimate of $7.10. In addition to general market risks, for Honeywell International, risks include: a downturn in global flight hours, downturn in large commercial aircraft orders, nonresidential recovery stalling, fundamental change in Oil & Gas, tougher volumes in global auto production, and acquisition/capital deployment mismanagement.
Ingersoll Rand (NYSE: IR) has a target price of $85 and a 2017 EPS estimate of $4.45. In addition to general market risks, for Ingersoll-Rand, risks include: acquisition execution, a nonresidential construction slowdown, poor execution on margin, weather impacting its Climate business, and F/X.
Lennox (NYSE: LII) has a $162 target price and 2017 EPS estimate of $7.70. For Lennox, risks include unseasonal weather patterns, weak European refrigeration market, slower than expected PartsPlus store openings, and a potential deceleration in global nonresidential construction.
3M's (NYSE: MMM) target price is $175,with a 2017 EPS estimate of $8.75. For 3M, risks include continued headwinds in the Electronics & Energy segment, potential pension headwinds post 2016, and potential price/cost mix headwinds in 2017.
MSC Industrial (NYSE: MSM) has a $85 target price and a 2018 EPS estimate of $4.25. For MSC Industrial, risks include persistent low inflation, increased pricing transparency, and Amazon.
Regal Beloit (NYSE: RBC) has a $70 target price and 2017 EPS estimate of $4.85. For Regal Beloit, risks include foreign competition in the large motors arena, oil & gas exposure, and China exposure.
Rockwell Automation's (NYSE: ROK) price target is $137, with a 2018 EPS estimate of $6.50. For Rockwell Automation, risks include oil & gas exposure (overall heavy industry) and potential consumer and auto rollover.
Roper (NYSE: ROP) has a $203 target price and 2017 EPS estimate of $7.25. In addition to general market and macroeconomic risks, for Roper, risks include CEO Brian Jellison management transition (age 70, no plans to retire); investor concern about lower structural top-line organic growth compressing the multiple (management is dismissive as cash returns remain solid); pronounced global cyclical rollover.
United Technologies (NYSE: UTX) has a $106 target price and 2017 EPS estimate of $6.60. For United Technologies, risks include pricing competition at Otis China, negative margin mix at UTAS, and a potential deceleration in global nonresidential construction.
Watsco's (NYSE: WSO) target price is $160, along with a 2017 EPS estimate of $5.70. In addition to general market risks, for Watsco, risks include: challenging HVAC pricing environment in the face of potential softening demand, lower commodity prices, weather muting seasonal demand, and pronounced cyclical rollover recession negatively altering consumer replacement patterns.
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