Jefferies Raises Price Target on Eaton Corp. (ETN) & Navistar International (NAV), Comments on Machinery Sector Prior to Q1 Results
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Price: $419.20 +0.94%
Rating Summary:
31 Buy, 14 Hold, 1 Sell
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Today's Overall Ratings:
Up: 8 | Down: 5 | New: 26
Rating Summary:
31 Buy, 14 Hold, 1 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 8 | Down: 5 | New: 26
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Jefferies is maintaining its Hold rating and is raising its price target on Eaton Corporation (NYSE: ETN) from $52.50 to $55, and is reiterating its Buy rating on shares of Navistar International Corp. (NYSE: NAV) and is raising its price target from $75 to $95.
Jefferies comments on the machinery industry prior to Q1 results.
Raw material costs have raised 10-20% over the quarter and 30-40% Y/Y. This has caused machinery companies to raise its prices. The firm notes that as an offset though there is an inherent lag as existing backlog is not re-priced. Jefferies also believes that the headwind will be short-lived as base price increases and surcharge mechanisms catch up in latter quarters.
As a whole, incremental margins for the machinery group remain in the 20-22% range through the year.
The firm reports that it would not be surprised if shares in the machinery sector trade off 3-5%, despite inline Q1 results, as expectations are high like they were for Q4:10. Typically machinery shares tend to have a weak period of performance in late spring.
Jefferies comments that, "We never encourage selling on valuation when underlying fundamentals are strengthening, but we do recognize that valuations for many names under coverage are bumping up against the top end of historical ranges. However, if our secular growth forecast is correct the current multiples will look less peaky as the cycle progresses."
Jefferies believes that that PACCAR Inc. (Nasdaq: PCAR), Oshkosh Corporation (NYSE: OSK), AGCO Corporation (Nasdaq: AGCO), and Navistar International Corp. have a potential for an upside due to low lower expectations than industry fundamentals suggest. It mentions that Deere & Company (NYSE: DE), Parker Hannifin Corporation (NYSE: PH), and Joy Global, Inc. (Nasdaq: JOYG) could face some near-term headwinds.
Jefferies comments on the machinery industry prior to Q1 results.
Raw material costs have raised 10-20% over the quarter and 30-40% Y/Y. This has caused machinery companies to raise its prices. The firm notes that as an offset though there is an inherent lag as existing backlog is not re-priced. Jefferies also believes that the headwind will be short-lived as base price increases and surcharge mechanisms catch up in latter quarters.
As a whole, incremental margins for the machinery group remain in the 20-22% range through the year.
The firm reports that it would not be surprised if shares in the machinery sector trade off 3-5%, despite inline Q1 results, as expectations are high like they were for Q4:10. Typically machinery shares tend to have a weak period of performance in late spring.
Jefferies comments that, "We never encourage selling on valuation when underlying fundamentals are strengthening, but we do recognize that valuations for many names under coverage are bumping up against the top end of historical ranges. However, if our secular growth forecast is correct the current multiples will look less peaky as the cycle progresses."
Jefferies believes that that PACCAR Inc. (Nasdaq: PCAR), Oshkosh Corporation (NYSE: OSK), AGCO Corporation (Nasdaq: AGCO), and Navistar International Corp. have a potential for an upside due to low lower expectations than industry fundamentals suggest. It mentions that Deere & Company (NYSE: DE), Parker Hannifin Corporation (NYSE: PH), and Joy Global, Inc. (Nasdaq: JOYG) could face some near-term headwinds.
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