Nomura Securities on U.S. Industrials: EPG Conference Day 1 - HON, DHR, ROK, SPW & MMM Sticking Close To Respective Playbooks
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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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Nomura Securities on U.S. Industrials: EPG Conference Day 1
Broader thoughts by analyst, Shannon O'Callaghan, "No companies waved the macro red flag. Management teams were upbeat on the US, saw Europe as weak (though DHR said Europe was actually slightly positive), and were mixed on China, with no indications of broad recovery through April, though discrete automation sounds like it has continued the improvement that started in the March quarter. Aerospace, O&G, and Utility end markets were all described positively...however, Day 1 was dominated by headlines outside of the presentation room with Eaton (NYSE: ETN) announcing the acquisition of Cooper (NYSE: CBE) for ~$11.8bn in equity value."
Individual Company Comments:
Honeywell (NYSE: HON)(Buy-rated): Management execution and portfolio still argue for a premium. Capital discipline (large deals unlikely) and margin improvement (added to 2-yr comp plan) should further help case for premium multiple. We would suggest further backing up the case by ramping share repurchase, but company seems cold to that idea so far.
Danaher (NYSE: DHR)(Buy-rated): Plenty of room to grow in adjacent spaces. While much of investor focus in the last year has been around Beckman, Danaher's playbook from here looks like it will be very similar to what has worked so well over the last 10 years with a mix of bolt-ons and expansions into adjacent spaces. Danaher highlighted 3 examples (ChemTreat, Lecia Biosystems, and Esko/X-Rite) where this model has worked so far.
SPX Corp (NYSE: SPW)(Neutral): Transformer cycle and CFO transition on track. Medium power transformer lead times still at 8-12 months with most of industry now in that range as well. Large power transformers guided to $0.14 of dilution in ’12, neutral to slightly accretive in ‘13, and ~$0.20 and ~$0.40 of accretion in 2014 and 2015, respectively.
Rockwell Automation (NYSE: ROK)(Buy): No slowdown seen in US, and China continues to recover from the weak December quarter. Consumer industries (ROK "sweet spot") are increasing spending in emerging markets.
3M (NYSE: MMM)(Reduce): Developing market margins steady ex-Optical. Management highlighted the margin strength in developing regions ex Optical, which on average are ~6 points above co. average over the last 10 years.
Broader thoughts by analyst, Shannon O'Callaghan, "No companies waved the macro red flag. Management teams were upbeat on the US, saw Europe as weak (though DHR said Europe was actually slightly positive), and were mixed on China, with no indications of broad recovery through April, though discrete automation sounds like it has continued the improvement that started in the March quarter. Aerospace, O&G, and Utility end markets were all described positively...however, Day 1 was dominated by headlines outside of the presentation room with Eaton (NYSE: ETN) announcing the acquisition of Cooper (NYSE: CBE) for ~$11.8bn in equity value."
Individual Company Comments:
Honeywell (NYSE: HON)(Buy-rated): Management execution and portfolio still argue for a premium. Capital discipline (large deals unlikely) and margin improvement (added to 2-yr comp plan) should further help case for premium multiple. We would suggest further backing up the case by ramping share repurchase, but company seems cold to that idea so far.
Danaher (NYSE: DHR)(Buy-rated): Plenty of room to grow in adjacent spaces. While much of investor focus in the last year has been around Beckman, Danaher's playbook from here looks like it will be very similar to what has worked so well over the last 10 years with a mix of bolt-ons and expansions into adjacent spaces. Danaher highlighted 3 examples (ChemTreat, Lecia Biosystems, and Esko/X-Rite) where this model has worked so far.
SPX Corp (NYSE: SPW)(Neutral): Transformer cycle and CFO transition on track. Medium power transformer lead times still at 8-12 months with most of industry now in that range as well. Large power transformers guided to $0.14 of dilution in ’12, neutral to slightly accretive in ‘13, and ~$0.20 and ~$0.40 of accretion in 2014 and 2015, respectively.
Rockwell Automation (NYSE: ROK)(Buy): No slowdown seen in US, and China continues to recover from the weak December quarter. Consumer industries (ROK "sweet spot") are increasing spending in emerging markets.
3M (NYSE: MMM)(Reduce): Developing market margins steady ex-Optical. Management highlighted the margin strength in developing regions ex Optical, which on average are ~6 points above co. average over the last 10 years.
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